Invest or pay off tracker

Agent Smyth

I am in the lucky position to have both a tracker mortgage and the funds to pay it off. Up until a couple of months ago I would have been of the opinion to pay the mortgage, but the more research and people I talk to, I am coming to the opinion that I would be better off not paying the mortgage, but holding off for a couple of years to see what the banks do about trackers or investing long term as the returns should be well in excess of the tracker rate.

Valetta

What's the rate on the tracker?

I don't see the banks doing any deals with trackers- they are now sourcing funds a lot cheaper and are not losing on most loans.

ixus

There's a third option. Do nothing, let it sit there. If you clear it off, you have to start saving again. I only say this because you're on a tracker. If you're monthly income is adversely affected by mortgage maybe see how clearing a chunk of it would affect terms.

People have this obsession with having to put their savings to use. I've seen this go wrong.

Is there something you're actually interested in doing with the cash? Valuations in most markets are stretched and risk premium skewed due to central bank intervention. Tax efficiency is the best way to go.

Agent Smyth

Valetta wrote: »

What's the rate on the tracker?

I don't see the banks doing any deals with trackers- they are now sourcing funds a lot cheaper and are not losing on most loans.

The rate is 1%.
I agree with you on the banks not doing deals and the banks might be sourcing funds at a cheaper rate but the margin on a tracker still remains the same, my understanding is this low margin is off set by the high margin on the variable rates.

Drumpot

I agree with ixus.

I think it would be hard to provide you with objective advice with the limited information supplied.

As somebody who works in the area of Pensions/investment it never ceases to amaze me how focused people get on making money instead of solidifying their existing wealth.

In many cases a persons house is not so much an investment as it is a family home. I would question why a person would reinvest funds externally that they could instead use to give them more personal stability. Owning your own home reduces external risk factors that cant always be controlled. Losing a job, getting sick, fund not performing etc. There are numerous things that can work against a person in this regard.

Sure, people could argue that paying 1% tracker off would be "losing money" when you can potentially make a higher rate on some deposits or lower risk investment vehicles. In my experience, many people only realise the risk they are taking (and the ramifications) when the unexpected happens (whatever that might be).

That said, I deal with people who take unnecessary risks, irrespective of the advice I give them. I find most people are risk takers or gamblers but ironically these same people would class themselves as conservative investors.

I suppose another option would be to do both. Pay off half your mortgage and use the other half to reinvest. At least you are halving the risk.

Agent Smyth

I would agree with both of you, my initial thought was to pay the mortgage, then I would be mortgage and loan free and in anybody's that is a nice place to be.
I would not be comfortable investing in shares with the mortgage money, although I have a pension and investments that are doing great and feel comfortable with the level of risk with both of those, when it comes to the home common sense has to prevail.
I am more thinking about putting the money in a high interest account and drawing down from that every six months or yearly and over pay the mortgage, this should balance each other out with little or no risk to the principle amount.
Hold it there for a year or two to see if there is any move on the trackers from the banks

SouthBank

Drumpot wrote: »

In many cases a persons house is not so much an investment as it is a family home. I would question why a person would reinvest funds externally that they could instead use to give them more personal stability. Owning your own home reduces external risk factors that cant always be controlled. Losing a job, getting sick, fund not performing etc. There are numerous things that can work against a person in this regard.
.

Problem with paying down your mortgage is that if you get sick, or lose your job, 'owning your house' may not be enough to get by.

OP should definitely have some very liquid assets to hand. Ideally 6 months salary minimum, but may need to be higher due to personal circumstances.

Hollister11

I would pay off my mortgage.

Deiseboy01

Agent Smyth wrote: »

I would agree with both of you, my initial thought was to pay the mortgage, then I would be mortgage and loan free and in anybody's that is a nice place to be.
I would not be comfortable investing in shares with the mortgage money, although I have a pension and investments that are doing great and feel comfortable with the level of risk with both of those, when it comes to the home common sense has to prevail.
I am more thinking about putting the money in a high interest account and drawing down from that every six months or yearly and over pay the mortgage, this should balance each other out with little or no risk to the principle amount.
Hold it there for a year or two to see if there is any move on the trackers from the banks

Interested in this idea that banks may do a deal on trackers, where is this coming from and what do you expect them to offer?

Gael23

I would keep the mortgage and invest for medium term if such an option is open to you. Its very likely that the savings rate will be higher than 1% so I would take that.
Then in a few years when ECB rates inevitably begin to rise, pay off the mortgage.

Agent Smyth

Deiseboy01 wrote: »

Interested in this idea that banks may do a deal on trackers, where is this coming from and what do you expect them to offer?

From what I can gather the tracker mortgages are not profitable for the banks,they have offset this loss by taking a higher margin on the variable rate mortgages but the fact still remains that the trackers are costing the banks money.
I don't know if the banks will do deals, it doesn't make sense for a person to swap from a tracker to a variable unless there is a financial incentive, this incentive would be to large for the banks to consider.
But for somebody to be in a position to pay off their tracker the banks would be foolish not to be thinking of some kind of incentive to get that money.
The incentive that I feel the banks should be offering is a couple of percent maybe five, in my case I might even consider free banking for life.
Ultimately I don't see the banks doing anything but letting the trackers wash out over the long term.

Phoebas

If I was in that position, I'd pay off the mortgage and invest the monthly income that frees up into tax efficient AVCs. ymmv.

hfallada

Just stick your savings in a decent saving account. Eg nationwide ireland regular savers at 4% or KBC regular saver at 3.5%. You will still make more than the tracker rate on your mortgage.

Dont forget the ECB rate will probably increase in 2/3 years. So you might as well have the money in liquid form to be able to pay your mortgage when the rates increase again

Gael23

hfallada wrote: »

Just stick your savings in a decent saving account. Eg nationwide ireland regular savers at 4% or KBC regular saver at 3.5%. You will still make more than the tracker rate on your mortgage.

Dont forget the ECB rate will probably increase in 2/3 years. So you might as well have the money in liquid form to be able to pay your mortgage when the rates increase again

The drawback with the KBC regular saver account is you cant make lump sum lodgements. I was interested in it until I discovered that.

L'prof

I'd be calling into a financial advisor to see what your options are. Do you have one in work by any chance? With your mortgage rate at 1%, surely you'd get better interest rates in savings accounts or even prize bonds if you had enough to invest. Would increasing your pension contribution be worthwhile?

I am in the same position as the OP. Tracker mortgage at 1% with 66k remaining.
I now have a redundancy coming through that would allow me to pay off the mortgage.
However, if there is a savings account paying 3% or more, then I would be better of putting the money into savings and having the cash available in the event of an emergency or kids college etc.
Where would I find out about the best savings accounts? Is the Credit Union a good option?

wavydave

I have thought about this a lot over the last few months. I have a family so my thinking might be slightly different.

If I had the money to pay off the mortgage I would rather invest the money because my mortgage debt is insured in the event of my death.

So if I die unexpectedly my family get the house paid off and still have the investment cash. This is important to me but may not be important for you. I thought I would throw it in there as I don't see this point put forward very often in investment versus mortgage discussions.

isolate

I see where you are all coming from, but just to make things a bit more confusing, I have a few small properties, one of them is my home. I dont really have any cash, but I could sell one property and pay off one or two of the three smallish mortgages. I also have a family and life insurance. I dont think the life insurance is connected to any of the loans or properties, but if I die my husband gets 250,000 euro with which he can pay off loans, or spend as he chooses. At least, thats my understanding of it. All the properties are bringing in rent, so maybe selling one is not a good thing to do. I would like to decrease my mortgage burdens though!! I think about this a lot, but I can never decide. Any info or suggestions would be much appreciated.
By the way I have no pension, and I dont know if I will be entitled to a state pension as a self employed person. Im sort of asset rich (a bit) but cash poor!!

Drumpot

wavydave wrote: »

I have thought about this a lot over the last few months. I have a family so my thinking might be slightly different.

If I had the money to pay off the mortgage I would rather invest the money because my mortgage debt is insured in the event of my death.

So if I die unexpectedly my family get the house paid off and still have the investment cash. This is important to me but may not be important for you. I thought I would throw it in there as I don't see this point put forward very often in investment versus mortgage discussions.

I incorrectly assumed that somebody who can pay off their mortgage would already have a 6 month emergency fund set aside!

As somebody who works in the Life Assurance industry, it never ceases to amaze me how focused people are on the now and seldom like to consider how their families will deal financially with the impact of sickness or death. Worse still, there is little focus ever put on planning for what ifs - What if you get ill and become a financial burden on your family?

If people are cash rich or have a reasonable amount of disposable income, they should be asking themselves why they don't have serious illness cover and possibly income protection if its relevant. .
You can get serious Illness cover on mortgage protection. If you have a family and children relying on you financially, it is more often then not more important to prioritise these covers then it is to save for a pension.

As I said at the start, people are too focused on increasing their wealth instead of securing it. People all to often do not consider all factors in these instances and focus on the simple "how to make my money work for me" instead of how to protect my current wealth and family if an unplanned event happens.

I make no apologies for being blunt. I am not tendering business here and I get fed up of the consumerist culture that convinces us all to believe that growth/change is the only thing we should focus on. I don't blame people for having such limited vision in this regard, its just an unfortunate side effect of modern day living.

Agent Smyth

Jerry Maguire is that you ??

Drumpot

Agent Smyth wrote: »

Jerry Maguire is that you ??

Many people want positive reinforcement of the "dream" of investment, wealth and growth. I can say that from professional and personal experience.

Don't get me wrong, there is a place for investing money and a prudent strategy can be effective. But that's presuming all variables are considered.

I don't know many people who actively factor in getting ill or dieing when making major financial decision. Its human nature and very much understandable, but it means people make financial decisions presuming that they will be healthy (or alive!) enough to make sure their goals are met.

daheff

I think what you need to do OP is to look at what you have, and where you want to be. When you decide where you want to be (financially speaking)- eg mortgage free, have a lump sum available, etc then you are in a position to look at the numbers on how that works out. Everybody is emotionally invested in the mortgage associated with their property. Paying it off is one of lifes goals.


As far as I can see, if you can get your money into a deposit account which (after tax) comes relatively close (or beats it!) to the rate you pay on your mortgage, then don't pay your mortgage off.

Why? Well lets say your deposit return is the same as your mortgage interest. In this case its 50-50 for you to pay off or keep the mortgage as either way you are in the same position. what you gain in interest on deposit you pay in interest on you mortgage...right? Yes, but if you pay off your mortgage you lose the immediate availability of the access to cash (and cash at the cheapest rate you'll ever have!)

What if you pay off your mortgage and an opportunity comes up to earn interest of twice the rate of your mortgage? You cant avail of that to the same level as if you hadn't paid off your mortgage. If you haven't paid off your mortgage, effectively the banks are paying you to take their money and put it elsewhere. So long as the capital is guaranteed you wont lose out (unless the whole deck of cards collapses again!)

Same for anybody else who has excess cash to pay off a cheap mortgage every month...it makes no financial sense to do so if you can put it on deposit at a higher (net) rate -eg those regular saver accounts paying 3-4% vs your mortgage of 1%. You win by not paying off the mortgage! :cool: Now...who wants to beat the bank???