Where to next? Advice & thoughts....

[waterman]

Age: 37
Spouse’s/Partner's age: 39

Annual gross income from employment or profession: GBP £37,000 (aprox EUR41810) +up to 15% bonus
Annual gross income of spouse: EUR200/week

Monthly take-home pay: Approx. EUR3020

Type of employment: Both Private Sector

In general are you:
(b) saving?

Rough estimate of value of home EUR250,000
Amount outstanding on your mortgage: EUR 70,000
What interest rate are you paying? AIB 3.1%

Other borrowings – car loans/personal loans etc No other loans

Do you pay off your full credit card balance each month? YES
If not, what is the balance on your credit card? N?A

Savings and investments:

Do you have a pension scheme? Me - Yes – Company 3%, I pay 10%

Partner - NO

Do you own any investment or other property? Approx EUR55,000 in various saving accounts

Ages of children: 5, 3, 1

Life insurance: No. Only basic mortgage protection


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

1. I do not wish to put the savings into the mortgage, unless there is no other real alternative, as we used approx. EUR180,000 of our own money when building the house. I understand we are paying an interest rate of 3.1% v’s the savings accounts returning close to zero but it is hard for us to commit more money into an asset that we cannot get access to if it was ever needed. Our monthly repayment is approx. EUR400 which we top up with another EUR200/month (total EUR600/month). Would appreciate other views on this.

2. We have a good bit of savings but this is just sitting in a number of different accounts. We used to switch banks regularly but with the current low rate of return now we don’t bother. Some of this savings will be used to replace one of the cars (an 04 & 08) soon. We would like this money to work for us so we can access before retirement e.g once in a life time holiday with the kids in a few years. Should we open a reg saver to an EFT?

3. Life insurance – both of our jobs would have pretty dismal death in benefit. Apart from the basic mortgage protection there is nothing else. So lately I’ve been thinking about starting a premium but no idea where to start or what we’d require. Is there any rule of thumb here?

4. Pensions – only I contribute to a pension and only the last 2 years have I started seriously. Last year I was putting aside 6% and this year I’ve increased this to 10%. I cannot increase this until next year again. Should I be putting more into the pension?

We'd love to get some impartial thoughts on where we are.

Thanks in advance,

Waterman

 

[Brendan Burgess]

1. I do not wish to put the savings into the mortgage, unless there is no other real alternative, as we used approx. EUR180,000 of our own money when building the house. I understand we are paying an interest rate of 3.1% v’s the savings accounts returning close to zero but it is hard for us to commit more money into an asset that we cannot get access to if it was ever needed. Our monthly repayment is approx. EUR400 which we top up with another EUR200/month (total EUR600/month). Would appreciate other views on this.

This is a tough one.

You will not get a better, risk-free, tax-free return than 3.1%.

Borrowing €55k at 3.1% to put it on deposit at 0.1% is costing you €1,600 a year. That is a lot to pay to have access to your money.

If you pay most of it off your mortgage, you will have the remaining balance paid off very quickly. That is a great position to be in. There is a huge psychological comfort to having paid down your mortgage.

The alternative is to put it in some form of Exchange Traded Fund. This will go up and down in value. To get 3.1% after tax, you are going to have to get about 5% to 6% a year before tax and charges. You might, but then again, you might lose 50% of it.

By paying off your mortgage, you will be able to build up your savings again fairly quickly. If some emergency arises, you will find it fairly easy to borrow as you have no other loans.

But should you be putting it into a pension instead?
That is certainly putting it out of reach for another 20 years or so.

Your show your salary in sterling? Do you get tax relief on your pension? At what rate?

You are certainly need to build up long term savings - you can do this through a pension fund outside a pension fund e.g. paying down your mortgage. Unless you are getting tax relief at the top rate, I probably wouldn't contribute more to the pension.

Life insurance
You have to consider what position you will be in if you die. Your wife will get the mortgage protection policy. She will be living mortgage-free. She will have the widow's pension. She will have her own salary. How much extra would she need?

On balance, I would prefer to be building up wealth rather than buying cover which I might never need. But it's not an easy decision.

You need to do the same calculation for what happens if your wife dies.

Brendan

 

[thedaddyman]

Start with the basics, namely ensure you have a will made and up to date with plans for your kids in the event of both of you dying. It does happen.

Secondly, are you going to have any major spends over the next 3-5 years, will a car need changing, will a garden need doing up etc?. If so, and if you don't want to take on additional debt, then you may need to start saving for that

Thirdly you need to plan what your child care costs are going to be over the next few years as kids move into school and what is the impact of those changes.

Personally, I would consider life assurance, you are not going to get much benefit out of the mortgage life assuarance element since your mortgage is so low. It's quite probable that if one of you were to die, then the ability of the other to return to work will be significantly reduced and impacted on. You or your other half would not want to need to return to work in such a situation, you may want to have the choice not to

Lastly, and if you are in a position to do so, you may want to consider starting a long term savings plan for your kids when they are older, especially if they go to college. You and your partner could be in your 60's when the youngest leaves college.

 

[waterman]

Hi Guys,

Thanks for the replies. We need to do more thinking an excel sheets to see what to do. Perhaps the best option might be 30k of savings into mortgage leaving a balance of approx 40k. Then continue to pay mortage at 600/month leaving us mortgage free after 7 more years (roughly).

WM