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