Age:35
Spouse’s/Partner's age: 30
Annual gross income from employment or profession:
E70,000
Annual gross income spouse:
None currently; stay at home Mum, as we have a very young baby
Type of employment:
Private sector employee
Expenditure pattern:
Generally sensible. I usually take a "live below my means" attitude.
Rough estimate of value of home
None; currently renting. Paying €900 a month rent.
Other borrowings – car loans/personal loans etc
A student loan. Currently €25,000 of a principle left, with an aprox 7.5 years term left, at an interest rate of 6.5%.
Do you pay off your full credit card balance each month?
Yes
Savings and investments:
€150,000 in a deposit savings account, paying 2.5% interest. Also a further €50,000 or so in a mix of investments (with expected only mediocre returns in the next couple of years)
Do you have a pension scheme?
Yes, a company DB scheme
Do you own any investment or other property?
No.
Ages of children:
One 6 months
Life insurance:
Nothing I contribute into, only a company plan which pays out to my spouse if I die in service.
What specific question do you have or what issues are of concern to you?
We hope within a period of 2 to 4 years to purchase a house (we're in no rush). I would estimate something in a region of €400,000 if we can afford it. This would therefore mean we can put up a deposit of €200k from our savings, and then get a further €200k mortgage, to pay back over a period of 30 yrs.
Having a student load of €25k outstanding bothers me (with an interest rate of 6.5%, which is fixed), as we have the means to pay it off right now from our savings. I hate having debt. However, if I was to clear this now with a lump sum from our savings, that would be €25k less to put towards a house in 2-4 yrs. If we were still to look for a house of a value of around, say, €400k, then we would need a mortgage of €225k instead of €200k, to make up the lump sum gap used to pay off the loan. Given that we would be clearing the mortgage over 30 yrs, the €25k would actually cost a lot more in interest over 30 yrs as part of the mortgage, rather than over the 7.5 years as part of the student loan.
It makes intuitive sense to me to pay off the student loan right now with a lump sum from our savings, given the loan interest rate is far greater than the savings deposit rate (6.5% vs 2.5%). However, doing this would mean we would have less to put towards a house in the future, and would end up paying a lot more mortgage interest.
I also expect to continue saving what we can in the meantime, through putting aside company bonuses etc, and put in the deposit account. However, I wouldn't expect to be able to make up anything close to the €25k in savings between now and buying a house. Also, servicing the student loan from salary income going forward would limit savings opportunities.
I realise we are lucky to be in such a healthy financial state in these times, am I am grateful. However, if we pick the wrong strategy here, we could end up wasting money in the long term.
What's the best thing to do?
A - pay off the student loan right now with our savings, and get a bigger mortgage in the future when we go to buy
B - pay off the student loan over the original schedule of the next 7.5 years, at the 6.5% interest, and keep our savings intact in the deposit account
C - pay off the student loan right now with our savings, and try to save as much as we can in the next 2-4 years to make up the shortfall in our savings, even if we would be lucky to save €10-€12k in the meantime
D - another option I'm missing?
Thank you for your advice!
Spouse’s/Partner's age: 30
Annual gross income from employment or profession:
E70,000
Annual gross income spouse:
None currently; stay at home Mum, as we have a very young baby
Type of employment:
Private sector employee
Expenditure pattern:
Generally sensible. I usually take a "live below my means" attitude.
Rough estimate of value of home
None; currently renting. Paying €900 a month rent.
Other borrowings – car loans/personal loans etc
A student loan. Currently €25,000 of a principle left, with an aprox 7.5 years term left, at an interest rate of 6.5%.
Do you pay off your full credit card balance each month?
Yes
Savings and investments:
€150,000 in a deposit savings account, paying 2.5% interest. Also a further €50,000 or so in a mix of investments (with expected only mediocre returns in the next couple of years)
Do you have a pension scheme?
Yes, a company DB scheme
Do you own any investment or other property?
No.
Ages of children:
One 6 months
Life insurance:
Nothing I contribute into, only a company plan which pays out to my spouse if I die in service.
What specific question do you have or what issues are of concern to you?
We hope within a period of 2 to 4 years to purchase a house (we're in no rush). I would estimate something in a region of €400,000 if we can afford it. This would therefore mean we can put up a deposit of €200k from our savings, and then get a further €200k mortgage, to pay back over a period of 30 yrs.
Having a student load of €25k outstanding bothers me (with an interest rate of 6.5%, which is fixed), as we have the means to pay it off right now from our savings. I hate having debt. However, if I was to clear this now with a lump sum from our savings, that would be €25k less to put towards a house in 2-4 yrs. If we were still to look for a house of a value of around, say, €400k, then we would need a mortgage of €225k instead of €200k, to make up the lump sum gap used to pay off the loan. Given that we would be clearing the mortgage over 30 yrs, the €25k would actually cost a lot more in interest over 30 yrs as part of the mortgage, rather than over the 7.5 years as part of the student loan.
It makes intuitive sense to me to pay off the student loan right now with a lump sum from our savings, given the loan interest rate is far greater than the savings deposit rate (6.5% vs 2.5%). However, doing this would mean we would have less to put towards a house in the future, and would end up paying a lot more mortgage interest.
I also expect to continue saving what we can in the meantime, through putting aside company bonuses etc, and put in the deposit account. However, I wouldn't expect to be able to make up anything close to the €25k in savings between now and buying a house. Also, servicing the student loan from salary income going forward would limit savings opportunities.
I realise we are lucky to be in such a healthy financial state in these times, am I am grateful. However, if we pick the wrong strategy here, we could end up wasting money in the long term.
What's the best thing to do?
A - pay off the student loan right now with our savings, and get a bigger mortgage in the future when we go to buy
B - pay off the student loan over the original schedule of the next 7.5 years, at the 6.5% interest, and keep our savings intact in the deposit account
C - pay off the student loan right now with our savings, and try to save as much as we can in the next 2-4 years to make up the shortfall in our savings, even if we would be lucky to save €10-€12k in the meantime
D - another option I'm missing?
Thank you for your advice!
