Save towards bigger house or pay off mortgages

A

Amand

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Age: 37
Age of spouse:35
Annual gross income from employment: €55,000
Annual gross income of spouse from employment: €60,000
Type of employment: Public sector
Type of employment spouse: Private sector
Expenditure pattern: Pay all bills on time, expenditure rarely exceeds income
Estimate value of home: €100,000
Mortgage on home: €211,000, 27 yr term left- €760.95pm, €73.17 TRS
Mortgage provider: BOI
Type of mortgage: Tracker
Interest Rate: 1.5%
Other borrowings: None
No credit card
Savings: €35,000 in bonds and certs An Post
Pension scheme: I pay €323.23 per 2 weeks, spouse pays €245.21 per month
Any other properties: Yes, value of house €100,000, mortgage left on house: €145,000, tracker rate of 1.35% with BOI, 20 years left at €653 per month. €600 rental income per month.
Ages of children: 5, 19 months and one on way
Life Assurance: Both have it
Specific question: Want a bigger house as soon as possible and wonder should we save our money or overpay our mortgages to pay off as soon as possible? Also, what to do with €35k savings?
 
You are in negative equity on both houses and have relatively modest savings. You need to stay where you are and increase your savings and hopefully in the meantime the market will move to reduce your negative equity.

You are overly exposed to property and would need to sell one or both existing properties before buying again, in my opinion.
 
If I get a chance, I will reply in detail to this later, but this is the most critical bit

should we save our money or overpay our mortgages to pay off as soon as possible?
Click to expand...

You must not overpay your mortgage under any circumstances. Save your money in an ordinary deposit account.

Bank of Ireland allow borrowers to move their tracker to a new property and keep it for 5 years but at a rate 1.3% higher. So if you overpay your mortgage now, you will end up borrowing this money back at 4.5% instead of at 2.8%

Furthermore, if you have a lump of cash when you are applying to move your tracker, BoI will be very interested. If you don't have any cash to reduce their overall exposure, they won't be interested.

BoI has not published their criteria but ptsb has. They insist that a borrower must have 10% of the purchase price of the new property.

So keep your money.
 
Thanks goingforgold and Brendan for the advice- would really appreciate a more detailed reply Brendan if u can. Would love to know what we should be aiming to save based on our income or is there a budget I can compare ours to? I keep detailed monthly income and expenditure logs!
 
Amand said:
Expenditure pattern: Pay all bills on time, expenditure rarely exceeds income
Click to expand...

That's odd, you stating that expenditure rarely exceeds income?

Are you saving a regular amount.

Pensions good

Investment property is fine, just leave it ticking away, all up to date on taxes, PRTB/NPPR etc?

With third child on way I presume this is what is driving the need for a bigger house. Any chance of an extension? How about renting your current home and you also renting something more suitable
 
The investment property is very profitable so keep it

Rental income: €7,200 a year
Interest cost: €2,100(€145k @1.45%)
Net profit before costs and income tax: €5,000

You are paying almost €6,000 a year in capital off the mortgage, so you are slowly but surely emerging from negative equity.

The cost of your home is very, very cheap
€211,000 @ 1.5% = €263 per month.

You are knocking €6,000 a year off the capital. Again, you are slowly but surely emerging from negative equity.

If Bank of Ireland approves you for a negative equity mortgage
You will be able to retain your tracker for 5 years at an increased margin of 1.5%

Say you borrow an additional €65,000 for the house.

After the 5 years, you will have a mortgage of €270,000 at an SVR of 4.5%
which would be an interest cost of around €1,000 a month or €750 a month more interest than you are paying at present.

Only you can decide if trading up is worth €750 extra a month in interest.

I have dealt with these matters more systematically in this Key Post
Negative equity tracker - trade up now or wait?

Financially, with €335k of net borrowings already and €115k of net negative equity, I think you should focus on reducing the net borrowing and negative equity.

What do you do with your savings in the meantime?
As suggested above, do not pay down either of your tracker mortgages.
Do not put the money anywhere where you can't get it in a hurry or where there are penalties for early encashment.

After that, it doesn't matter too much. Check out the best buys for lump sums.
 
Bronte, yep- if we don't have it, we try not to spend it! All prtb, taxes paid on investment property.
 
Not saving a regular amount for last few months but definately intend to start this again. Yes, would like a bigger garden and no 3 means extra space would be nice, but not essential at the moment so from advice so far, think we'll sit tight for 10 years, save as hard as we can and dont overpay mortgages!
 
Only you can decide if trading up is worth €750 extra a year in interest.

Brendan, just wondering if u mean €750 per month, not year? U mention €750 per month earlier in the reply.
 
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