Unclear on investment strategy

B

boomshine

Registered User
Messages
25
Hi there,

Age: 28
Spouse /Partner: N/A

Annual gross income from employment or profession: E58,000, typically E15,000 extra for commission, bonus etc

Type of employment: Private sector employee

Expenditure pattern: Low

Rough estimate of value of home: None

Other borrowings – car loans/personal loans etc None

Do you pay off your full credit card balance each month? N/A

Savings and investments: E35,000 savings / deposit if I decide buying a home is best.

Do you have a pension scheme? No

Do you own any investment or other property? No

Ages of children: None.

Life insurance: Yes. And health

What specific question do you have or what issues are of concern to you?

I am wondering what guidelines are best followed for someone in my situation. Currently I am living well below my means and saving about E2500- E2750 a month in a current account. I have been researching mortgages and the HTB scheme for housing and it is looking attractive. I would be considering:

Moving from 1 bed apt to 3 bed semi new home:
Mortgage on home
E200,000 - EBS variable rates 2% cashback.

If my spreadsheets are correct I would only be paying 0-2k more per year (and decreasing due to prepaying mortage, lowering interest) and have a lot more space and choice with the housing upgrade. The HTB scheme seems to make it more attractive and my savings could be put to good use. The cons for me are as I am youngish I might not want to stay in my current city for 5+ years and if given the choice I would prefer to stick it all in one single diverse index fund and set and forget. But the index funds and investing process in Ireland seems to be not as good as owning a home due to CGT and 41% exit tax if I understand it correctly.

The other option is to use the pension scheme that is available to me but there is no employer match and the management rates and fees do not seem to be very good.

I was wondering if any of you have thoughts on these concerns and/or different outlooks that I should consider.

Thank you for your time
 
boomshine said:
If my spreadsheets are correct I would only be paying 0-2k more per year (and decreasing due to prepaying mortage, lowering interest)
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There is something wrong here. Mortgage payments do not change during the life of a mortgage except when interest rates change. The payments do not decrease as the mortgage is repaid.

Other than that, its really a question of choice, do you want to be a homeowner.

Don't buy a house just because of CGT relief, by the same token don't avoid a pension because of management charges.

In my opinion anyone who can afford to buy a house and doesn't is a fool, but that is just an opinion. In 10 years time you may not have the options you do now. I worked with a woman who turned down the opportunity to buy a cottage in south county Dublin in her 20s because she did want to be tied to a mortgage. Today she is renting in Dublin in her 50s.
 

I am using the following calculator : drcalculator
I was under the impression that if you have for example: a 30 year variable rate mortgage and you overpay into the mortgage each month then your interest rates will lower overtime and so will the term length itself.

Ex: Overpaying by 2600:

Month Interest Principal Balance
Jan €438.81 €2,989.70 €139,325.55
Feb €429.59 €2,998.92 €136,326.63
Mar €420.34 €3,008.17 €133,318.46
Apr €411.07 €3,017.44 €130,301.02
May €401.76 €3,026.75 €127,274.27


Sure it would not be just for relief but rather as it is likely the best route for investment in my case (feel free to discuss this further as I am just guessing with my limited knowledge). The other pros would also be great: having a gym/office room, decent lighting in the place, probably better neighbors, much newer interior and furnishings etc.

You are very correct I could easily face one or two big setbacks and might not have this option in a few years or less.
 

When you sign a mortgage contract you agree to repay the principal and interest over a set number of years, in the absence of interest rate changes this means a set amount each month for the life of the mortgage.

Most variable rate mortgages allow you to over pay this amount. That has the effect of reducing the amount owed obviously.

A regular monthly overpayment will shorten the life of the mortgage.

A lump sum can be used to reduce the amount payable in each succeeding month.

These things are not totally flexible, the bank has to agree, after all you are changing the terms of the mortgage contract.

The actual rate of interest charged does not change. At some point you might get the bank to reduce the rate if your loan to value ratio has decreased, or move to another bank for a better rate. That could be done over the phone in 2005, was impossible in 2011, and can be done with some trouble in 2017.

boomshine said:
The other pros would also be great: having a gym/office room, decent lighting in the place, probably better neighbors, much newer interior and furnishings etc.
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This is a matter of opinion, mine would certainly be to buy. You could also rent a room, up to €14k tax free, it is a nice option even if you never did it.
 
cremeegg said:
This is a matter of opinion, mine would certainly be to buy. You could also rent a room, up to €14k tax free, it is a nice option even if you never did it.
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Yes, I did consider that. It is a great option. I have some friends that may be interested.

Thanks for the above I keep saying interest rates, I meant to say interest payments each month, apologies. I was not aware that the bank has to agree with the overpayment amounts. In my mortgage meeting I was given the impression that I could just increase the amount at will when using a variable rate. I will certainly ask for details on this as the flexibility of it would be nice to have and be aware of.
 
boomshine said:
I was not aware that the bank has to agree with the overpayment amounts.
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They don't.

You have a statutory right to repay a variable rate mortgage ahead of schedule without penalty.

FWIW, my advice would be to take your time taking on a mortgage - it's a big commitment. Talk to your colleagues that are now in the late 30s/early 40s that bought at your age. I suspect they will urge you to be very cautious - particularly if you don't know where you want to be in 5 years' time.

There is a real value to retaining flexibility at your age.
 
Sarenco said:
You have a statutory right to repay a variable rate mortgage ahead of schedule without penalty.
Click to expand...

This appears to be correct, and thanks for setting me straight.

The matter of overpayments reducing the term or reducing future payments does I believe need to be clarified with the bank.
 
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