Case study What do do with inheritance?

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cms

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Age:41
Spouse’s/Partner's age:46

Annual gross income from employment or profession: €62K
Annual gross income of spouse:€62K

Monthly take-home pay ~€6K

Type of employment: Both public sector

In general are you:
(a) spending more than you earn, or
(b) saving?

Saving

Rough estimate of value of home: €300K
Amount outstanding on your mortgage: €250
What interest rate are you paying? Tracker, ECB+0.8%

Other borrowings – car loans/personal loans etc: None

Do you pay off your full credit card balance each month? Yes

Savings and investments: €30K in savings account

Do you have a pension scheme? Yes, both of us on are on the same scheme. It was a defined benefit scheme until last year when it changed to an integrated scheme.

Do you own any investment or other property? Currently selling an inherited property

Ages of children: 7 and 10

Life insurance: Yes, for the full amount of our original mortgage, €340K


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

I’m currently selling an inherited property which should mean I’ll be getting in the region of €180K shortly. I just can’t decide what to do with it.

Paying a chunk of the mortgage seems to be the obvious choice but we have a great tracker rate so I’m not sure.

We don’t have any intention of moving house but we could put some money into doing the house up, attic conversion, new windows etc.

I’m also considering going part time in work. I would do half my hours but when I checked on the tax calculator our combined annual net income would only decrease by €15K. There would be in impact on my pension as well though.


Any advice would be much appreciated.
 
It's not a good idea to pay off a tracker early.
  • If you are with one of the lenders who is no longer active in the market, they may at some stage, offer a discount for early repayment.
  • If you are with one of the active lenders, you may wish to move home and you can then bring the tracker with you, subject to a 1% increase in rates. If you pay it off, you will be borrowing the full amount at market rates.
You already have an investment in property through your family home.

The best long term returns are likely to come from the stock market, and you can comfortably handle the risks of any long term sustained fall in property prices.

So buy shares either through a low cost Exchange Traded Fund or a small portfolio of directly held blue-chip shares.

Brendan
 
@cms

Here's a link to a previous discussion on the wisdom (or otherwise) of paying off a cheap tracker that might help with your deliberations -

https://www.askaboutmoney.com/threads/is-it-mad-to-pay-off-a-cheap-tracker.193088/

While there is certainly no consensus on the point, I take the view that our punitive taxes on investment income and gains skew the risk/reward analysis to the point that it generally does not make sense to invest in equities outside a pension wrapper while carrying debt. Any debt, however cheap.

In any event, you should certainly exhaust all tax-deferred AVC options before investing outside a pension wrapper.

I also think you should make whatever updates or improvements that you feel would add to the comfort of your home.

Hope that helps.
 
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Thanks for the replies.
The mortgage is with Aib so not sure what the chances are of being offered a discount for early repay. That's a good point about moving though.
I spoke with a rep from the pension provider last year and she told me I'm paying the maximum into my pension. If I go part time I'm presuming that will change so I'll contact her again.
 
I don't know about the finance side - but your children are still in primary school. I would reduce your hours to spend more time with them. Especially if you think it'll be possible to resume full time work at a later date, should you choose to.
I work part time. Life with kids is much easier, when you can fit in play dates, dental appointments, homework, swimming lessons etc during the afternoon - instead of trying to fit everything in after work when you're all tired.
 
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