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Savings or pay off mortgage

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  • 06-10-2014 7:16pm
    #1
    mickman
    Closed Accounts Posts: 4,661 ✭✭✭


    Hi guys

    I opened a state savings account 3 years ago . Am I better off leaving it there or withdrawing and paying it off my mortgage. My mortgafe is 4.5% variable


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    #2
    macker64
    Registered Users Posts: 145 ✭✭macker64


    I would stop paying into your existing savings account and start overpaying your monthly mortgage repayment by the amount of your original monthly savings.

    Ask your mortgage provider for a detailed statement indicating by how many years you can reduce your repayment term.

    Put your existing savings lump sum into the highest interest earning account you can find, preferably one where you can get at your money quickly and efficiently so the need arise!!

    :)


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    #3
    JTMan
    Registered Users Posts: 5,538 ✭✭✭JTMan


    mickman wrote: »
    I opened a state savings account 3 years ago .

    Which State Savings product? Was it a fixed product? How long until maturity date? What rate is it paying?


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    #4
    mickman
    Closed Accounts Posts: 4,661 ✭✭✭mickman


    JTMan wrote: »
    Which State Savings product? Was it a fixed product? How long until maturity date? What rate is it paying?

    Fixed yes. 10 year maturity date. To be honest I don't know the rate


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    #5
    collie0708
    Registered Users Posts: 665 ✭✭✭collie0708


    mickman wrote: »
    Fixed yes. 10 year maturity date. To be honest I don't know the rate

    Sounds like the 10 year solidarity bond,did one myself the returns were pretty good I think it's just under 50% of the amount invested in interest over the 10 years with no DIRT payment required. If I'm correct I Would leave this money were it is and start over paying the mortgage with any additional spare cash you have..


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    #6
    JTMan
    Registered Users Posts: 5,538 ✭✭✭JTMan


    mickman wrote: »
    Fixed yes. 10 year maturity date. To be honest I don't know the rate

    I would guess that you have issue 1 of the NTMA State Savings National Solidarity Bond. More details here. The net return is 3.96% AER which is a great return. Nobody gets these kind of returns anymore.

    That said, 7 years is a hell of a long time to wait till you get, most, of your interest payment.

    Also, and this is the most important fact, on the surface, it seems you are paying more in interest than you are earning on interest. However, there is not a massive gap.

    Are you getting mortgage interest relief?


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    #7
    JTMan
    Registered Users Posts: 5,538 ✭✭✭JTMan


    collie0708 wrote: »
    Sounds like the 10 year solidarity bond,did one myself the returns were pretty good I think it's just under 50% of the amount invested in interest over the 10 years with no DIRT payment required.

    Incorrect. Issue 1 and issue 2 of the 10 year solidarity bond has a part DIRT liability. Issue 3 and issue 4 did not have a DIRT liability.
    collie0708 wrote: »
    If I'm correct I Would leave this money were it is

    That is not the way to look at the issue. The issue is does the interest earned exceed the interest payment net of tax or not.


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    #8
    stimpson
    Registered Users Posts: 7,815 ✭✭✭stimpson


    KBC allowed me to pay 10% of the principal even while on a fixed rate. I can withdraw it all at any time. Not bad at 4.5% with no DIRT.


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    #9
    JTMan
    Registered Users Posts: 5,538 ✭✭✭JTMan


    stimpson wrote: »
    Not bad at 4.5% with no DIRT.

    ?? Who is getting 4.5% with no DIRT? The OP is getting 3.96% net and paying 4.5% on their mortgage.


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    #10
    stimpson
    Registered Users Posts: 7,815 ✭✭✭stimpson


    JTMan wrote: »
    ?? Who is getting 4.5% with no DIRT? The OP is getting 3.96% net and paying 4.5% on their mortgage.

    If you're reducing your monthly repayments or term by overpaying your mortgage, you are getting the equivalent of 4.5% without having to pay DIRT.

    Anyone with savings and a mortgage is crazy.


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    #11
    mickman
    Closed Accounts Posts: 4,661 ✭✭✭mickman


    stimpson wrote: »
    If you're reducing your monthly repayments or term by overpaying your mortgage, you are getting the equivalent of 4.5% without having to pay DIRT.

    Anyone with savings and a mortgage is crazy.

    Yes I am getting mortgafe interest relief. That brings down the effective interest rate I presume

    How would I cslculate the interest when you take interest relief into it


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    #12
    JTMan
    Registered Users Posts: 5,538 ✭✭✭JTMan


    stimpson wrote: »
    Anyone with savings and a mortgage is crazy.

    Not always the case. It depends on the rates involved and other circumstances.
    Yes I am getting mortgafe interest relief. That brings down the effective interest rate I presume

    How would I cslculate the interest when you take interest relief into it

    You are right that you should be comparing your effective net debt rate with your net deposit rate.

    However, you also need to take the term of your deposit into account and you need to factor in the 3 years of accrued interest that you will loose if you close your 10 year product early.

    Also, MIR will go on 31 December 2017 apparently.

    There is no simple answer to your question.

    How long is left on your mortgage? How much money are we talking about?


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    #13
    stimpson
    Registered Users Posts: 7,815 ✭✭✭stimpson


    JTMan wrote: »
    Not always the case. It depends on the rates involved and other circumstances.

    Sorry, yeah. If you're on a low tracker you could be better off with savings. Best rate on savings though is 3.5%


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    #14
    hfallada
    Closed Accounts Posts: 4,180 ✭✭✭hfallada


    But it's good to have done emergency savings. If you car is broke down tomorrow. Have you money for major repairs? If you lose your job. Do you have some extra savings to live off ( unless you can survive on welfare)? Op chances are your variable will increase in the next few years. See how you can cash in your bond and minise your interest losses


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    #15
    JTMan
    Registered Users Posts: 5,538 ✭✭✭JTMan


    stimpson wrote: »
    Best rate on savings though is 3.5%

    Incorrect.

    The best rate is 4.50%, however this with contingent fees, with KBC with their KBC regular saver with a KBC current account.

    The second best rate is 4.00% with Nationwide UK (Ireland) with their regular saver product.


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    #16
    JTMan
    Registered Users Posts: 5,538 ✭✭✭JTMan


    hfallada wrote: »
    But it's good to have done emergency savings. If you car is broke down tomorrow. Have you money for major repairs? If you lose your job. Do you have some extra savings to live off ( unless you can survive on welfare)?

    Good points.
    hfallada wrote: »
    Op chances are your variable will increase in the next few years.

    Really?

    The Central Bank governor today said he expects them to go down. Variable rates in Ireland for mortgages are the highest in the Eurozone. Rates are almost 2% above Eurozone averages.

    Merrion and others think new competition will enter the market.

    In fact, if the OP is paying 4.5% there is a chance that the OP might now be able to switch to KBC or PTSB or another provider and slash their rate.
    hfallada wrote: »
    See how you can cash in your bond and minise your interest losses

    If you encash early you will loose 3 years of accrued bonus interest.


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    #17
    stimpson
    Registered Users Posts: 7,815 ✭✭✭stimpson


    JTMan wrote: »
    Incorrect.

    The best rate is 4.50%, however this with contingent fees, with KBC with their KBC regular saver with a KBC current account.

    The second best rate is 4.00% with Nationwide UK (Ireland) with their regular saver product.

    KBC is only 4.5% until June. Nationwide are 4% up to 15k and 1.05 above that. Lop off 41% of that for Dirt and you're left with less than 2.5%

    Cheapest variable mortgage is barely under 4%.


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    #18
    murphaph
    Registered Users Posts: 19,018 ✭✭✭✭murphaph


    Yep, you shouldn't be saving anything when you have a mortgage at 4.5% BUT as already mentioned you should maintain an emergency cash fund that you can access instantly to pay for that blown engine or new gas boiler or whatever.


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    #19
    stimpson
    Registered Users Posts: 7,815 ✭✭✭stimpson


    murphaph wrote: »
    Yep, you shouldn't be saving anything when you have a mortgage at 4.5% BUT as already mentioned you should maintain an emergency cash fund that you can access instantly to pay for that blown engine or new gas boiler or whatever.

    KBC will allow me instant access to my 10% overpayment.


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    #20
    Trish56
    Registered Users Posts: 1,256 ✭✭✭Trish56


    mickman wrote: »
    Hi guys

    I opened a state savings account 3 years ago . Am I better off leaving it there or withdrawing and paying it off my mortgage. My mortgafe is 4.5% variable

    Depends on the interest rate you are earning on the state savings account. You can remortgage with KBC and they will pay 1k towards legal fees. if your loan to value is less than 60% rate of 3.80% or 3.60% if you open a current account with them. If your loan to value is 80% the rate is 3.99% and 3.79% if you open a current account. This offer is available once mortgage is drawn down by 31st December 2014. Might be worth considering with a view to paying off the lump sum in 7 years time when the state savings mature.


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    #21
    mickman
    Closed Accounts Posts: 4,661 ✭✭✭mickman


    ok just to complicate things further

    current mortgage is 220k 4.5% - mortgage 1100 pm , will rent this house for 700
    getting new mortgage for new house at 3.9% - 180k
    savings of 80k
    state savings of 25k

    should i get higher mortgage now at 3.9% and pay off more of the aib one ? should i use state savings to pay off some of first mortgage . all very confusing with different rates etc.

    if i used state savings off first mortgage then it would be under 200k which would be good. the 80k savings will likely be used on new house


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    #22
    JTMan
    Registered Users Posts: 5,538 ✭✭✭JTMan


    Is the 80k earning a rate lower than 3.96% AER?

    It seems your plan is:
    (1) Get your new mortgage sorted.
    (2) Use the 80k against the new mortgage.
    (3) Be left with 25k savings in a 10 year term account with 3 years accrued interest.

    Assuming the 80k is earning a lower rate, I would be inclined to leave the 25k with SS. It is a buffer or rainy day fund in case anything goes wrong. Also, there is little difference between the deposit rate and the mortgage rate. Also, you would loose 3 years accrued bonus interest if you shut the account.

    There is no straight forward answer but that is how I would approach the situation.


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    #23
    mickman
    Closed Accounts Posts: 4,661 ✭✭✭mickman


    JTMan wrote: »
    Is the 80k earning a rate lower than 3.96% AER?

    It seems your plan is:
    (1) Get your new mortgage sorted.
    (2) Use the 80k against the new mortgage.
    (3) Be left with 25k savings in a 10 year term account with 3 years accrued interest.

    Assuming the 80k is earning a lower rate, I would be inclined to leave the 25k with SS. It is a buffer or rainy day fund in case anything goes wrong. Also, there is little difference between the deposit rate and the mortgage rate. Also, you would loose 3 years accrued bonus interest if you shut the account.

    There is no straight forward answer but that is how I would approach the situation.

    yes what you say is sensible. Yes the 80k is earning little interest so we will use this on the new house / mortgage.

    Thanks


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    #24
    Gael23
    Registered Users Posts: 12,090 ✭✭✭✭Gael23


    Use the 80k to reduce the new mortgage to 100k or so. Im not sure how accessible your 25k in SS is so you may want to keep 5k or that in cash.


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    #25
    JTMan
    Registered Users Posts: 5,538 ✭✭✭JTMan


    ryanf1 wrote: »
    Im not sure how accessible your 25k in SS

    The 25k is accessible subject to loosing 3 months accrued bonus interest.


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    #26
    hfallada
    Closed Accounts Posts: 4,180 ✭✭✭hfallada


    JTMan wrote: »
    Good points.



    Really?

    The Central Bank governor today said he expects them to go down. Variable rates in Ireland for mortgages are the highest in the Eurozone. Rates are almost 2% above Eurozone averages.

    Merrion and others think new competition will enter the market.

    In fact, if the OP is paying 4.5% there is a chance that the OP might now be able to switch to KBC or PTSB or another provider and slash their rate.



    If you encash early you will loose 3 years of accrued bonus interest.

    Irish banks are using inflated variable mortgage rates to allow them to cover their massive losses with their tracker loan books. I cant imagine any bank reducing their variables at all. They will simply lose money and gain nothing(even if they gain customers it wont be enough to cover losses). No other banks in Europe have huge amounts of trackers like Ireland


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