Should we pay lump sum off mortgage

CJ1

Hi
Any advice appreciated.
We live in a 2 bed apartment in Lucan, we bought off plans in 2005, we owe €238,000 at mo, not sure how much its worth (reality is it probably would not sell, but quite a few apartments rented and seems to be quite a good letting trend in the estate).
We are one yr into a fixed 3 yr mortgage with AIB. I am a teacher, permanent, husband is unemployed plumber, his PRSI has just run out will get nothing on dole so intends to set up on his own and hope for even small jobs to tick over from jan onwards. First baby on way in few weeks!

We have €175,000 in savings/personal accounts. Hubbie will need €20,000 approx to start him off with van/tools/insurance, would also need to leave a certain amount to give us some leeway with mortgage repayments etc.
My question is should we pay a lump off mortgage and try save any extras from then on or should we just leave well enough alone and keep trying to add to the money we have already. Our hope is to one day be able to own a nice house but will not get mortgage now for few years anyway til he has some business account details to show bank. We may have to lease out apt and rent a house so i am wondering should we leave things as then we may be able to offset some of the rental income against mortgage interest etc?

Sorry for long post. Hope it makes sense.

Victor

I wouldn't jump into anything just yet.

What form are the savings in? Deposit accounts? Stocks/shares? Unit funds? Are they making money? Are you paying tax on the income from them?

How long do you have the mortgage. How much mortgage interest relief are you getting?

Combining the two of those does it make sense to pay X interest rate on the mortgage while earning Y interest rate on the savings.

"husband is unemployed plumber, his PRSI has just run out will get nothing on dole" - is this because of your earnings? It may be possible he is entitled to something, but perhaps not a lot.

Of course, do maintain a rainy day fund.

the_syco

Victor wrote: »

Of course, do maintain a rainy day fund.

I second this. Also, until your baby is born, don't give the bank any extra money: better to have it, and not need it, than need it, and not have it.

smcgiff

Assume you have no other loans other than mortgage. Obviously you should pay off Credit Cards and other loans etc first. Mortgages tend to be the cheapest form of debt (as it is secured), so it should be paid off last.

Also, bear in mind that you have a fixed mortgage at the moment. So, for you to pay off some of the capital would mean breaking this arrangement and therefore would incur up to six months interest as penalties, which can be quite expensive.

I can understand your desire to use the funds to pay down your mortgage. However, it sounds like a good idea to fund your husband's venture through savings.

Banks are gagging for money at the moment and might be worth asking them if you can pay off a hundred k off your mortgage without incurring a penalty (get this in writing if they agree).

Alternatively put something like €100k into savings for two years then use it to pay off your mortgage when it becomes variable.

Da GOAT

ive heard that An Post offer the best rates on deposits. There are term option and all monies is gauranteed since the are government owned so your money is safe. If i had money to deposit id put it there.

kmick

Keep your cash. You dont need to pay off a lump sum and that size of lump sum would reduce your mortgage by a small amount. Use half of it to set up your husband and keep the rest in case you need to supplement your mortgage payment in the future as you dont know how long he will be unemployed.

ricman

Look on daft ie , lucan for sale, see what other apartments are going for, most areas have had 30 per minimum cent drop in prices since 2008.
IF you apartment is in negative eqiuty,say by 50k, you can still sell it as you have 50k plus in the bank.Keep most of your cash,if possible,make sure its in a high interest account.eg 4 per cent plus interest.

johnnyjb

20 K to start up a business seems crazy.

I wouldnt spend that money to start a business when the chances are he wont get enough work. Does he have something lined up.

I could be wrong but will he get any where close to paying off the money he spent in the next 5 years.

OMD

CJ1 wrote: »

Hi

We are one yr into a fixed 3 yr mortgage with AIB.

More than likely (depending on your mortgage small print) you would have to pay penalties if you tried to pay off mortgage early. Give the bank a quick call first.

If it is a possibility that you might rent out property then do not pay off the mortgage for the reasons you gave yourself (although that may change in budget).

Depending on your mortgage rate, you may find you can earn more by investing your money securely than paying off mortgage. For an amount this large, unless you feel very competent, a chat with a financial advisor would be a good idea.

dory

I don't know much about mortgages but can I just say, that is an amazing amount of savings! Is there any forum on boards that people talk about money/how to save etc.? Sorry for off-topicness, just wondering.

theg81der

We were in this position 2 years ago we chose to pay of the morgage and be debt free. None of us can say whats around the corner and how secure money is in banks at the moment. We did not incur a penalty, as said above their gaggin for money. If you sold now and took the hit you might be fit to get a morgage in a year (my sister is a teacher without a permanent contract and she got one this year) and get your dream house.

Congrats and good luck with you baby!!!

ricman

Just Google askaboutmoney.com ie forum, theres forums there re mortgages,savings,financial advice.
SEE here http://www.askaboutmoney.com/forumdisplay.php?f=93 its an irish website,
if you use your money, to pay off mortgage a, you may find it very hard to get a mortgage on a house,as most of your capital will be gone.BY THE WAY Theres nice 3bed homes going for 180k,in dublin,in private estates.

CJ1

Thanks a mil for replies, think after baby arrives i may meet with a financial advisor and look at options. Looks like investing well may be wiser than paying off. At moment we have 70,000 in 30 day notice ac with permanent tsb 2.9% interest. Maybe could be somewhere better!

Idbatterim

I concur with 20k to start up such a business as being quite OTT. I would check what the best interest rate you can get from a guaranteed bank is for a start. The advantage of having cash at the moment is, that should a great opportunity come up, you can move and move quickly. Do you have any idea how much in interest you are paying back every month?