100k savings , 200k mortgage remaing.

Car99

If I had 100k saving and 200k remaining on a tracker mortgage with a rate of 1.3 currently, what should I do save/ invest the 100k or knock it off the mortgage which would halve my monthly repayments?

Nervous Wreck

Knock it off the mortgage but reduce the term rather than the repayments. Less time paying the mortgage = less time for interest to accrue.

Bubbaclaus

If you can earn greater than the mortgage interest rate by investing it then it would be more beneficial to invest. Be sure to take into account the taxes that would be involved though.

fits

I would be inclined to invest it I think. But if you put it against mortgage, as others said, use it to reduce term rather than repayments.

Mollyd90

Id be inclined to invest or put into a savings account and pay in extra off mortgage from dividend or interest earned. 100k is not easy comeby. If you pay it off your mortgage like others are saying reduce the term and not the repayments but also speak to bank about doing deal. Not sure if banks still doing it but in last few years couple of banks were writing off some of principle if lump sum paid.

g0g

I thought I remember reading a similar thread previously and the consensus of putting against mortgage was to keep the term and reduce payments rather than reduce term? Would the choice between the two vary based on interest rate? i.e. If interest rate were 3.8% would the advice be the same?

Car99

Many thanks for the replies.

I think if it could earn more than 1.3% after taxation and costs are taken into account it makes sense to invest.

But to acheive a reasonable return on investment I'd probably have to commit to something for a number of years in which time the ECB may raise interest rates eroding any profit.

Any opinions on how long before interst rates start to rise?

murphaph

At 1.3% you can beat that just on deposit, spreading the money around and drip feeding (as quickly as possible) the max amounts into some better paying regular saver accounts (they pay higher interest than lump sum accounts!). If you are up for a little risk, you could perhaps put a portion on deposit and some into the stock market (do your homework and don't put all your eggs in one basket obviously).

Personally I would be very reluctant to clear down a mortgage at 1.3%. You'll probably never see such cheap money again in your lifetime. if your mortgage was some standard variable rate thing at 4% my advice would be "pay down your mortgage", but at 1.3% you really have to think a bit more about it. Of course, rates could rise, but if they do your deposit rate will rise with it and you can always put it towards the mortgage if things turn the other way.

padjo5

Ideally you would consider your broader financial circumstances and priorities in order to make an informed decision. Looking at the mortgage or invest scenario above in isolation, at just over 1% it is extremely cheap money, a rate which could be exceeded through deposit and/or conservative investment.
You are in a nice position to have the option!

AlmightyCushion

padjo5 wrote: »

Ideally you would consider your broader financial circumstances and priorities in order to make an informed decision. Looking at the mortgage or invest scenario above in isolation, at just over 1% it is extremely cheap money, a rate which could be exceeded through deposit and/or conservative investment.
You are in a nice position to have the option!

The only accounts that would give 1.5% after DIRT are regular savers and it would take over 8 years to put 100K into one of them. The rate is also likely to decrease over time. You'd never make more in interest in a regular saver than you would save by paying it off the mortgage.

bonyn

Are your savings in the bank? See if your bank will do a deal with you.. tell them you've opened a kbc deposit account and want to transfer the 100k to it. See if they can give you a cash incentive to throw it off the mortgage instead.

DIRT is 41% so while it's a nice idea to get a better rate in savings, it's probably not worth the risk or the hassle.

Depending on how you came by the 100k or how easy you could do it again, investing is horrific advice. The world economy has never been more volatile. I'd nearly be afraid to leave that money in the bank in case the government raided deposit accounts.

Scottie99

Maybe not the fashionable idea but tax efficient. Stick SOME 10k or so into your pension?

homer911

Split it - Pension, Mortgage Lump sum, Savings. Always good to have access to cash for a rainy day

murphaph

Yep, cash is king. I would never want to have nothing in the bank for a rainy day.

Taylor365

Did I not hear deals being made by banks to write off expensive loans? 1.3% must be useless to the bank.

I wonder would they knock off 20/30/40k if you paid the 100k off the mortgage....

100k is more use to them now than drip fed over 20 years...

homer911

Taylor365 wrote: »

Did I not hear deals being made by banks to write off expensive loans? 1.3% must be useless to the bank.

I wonder would they knock off 20/30/40k if you paid the 100k off the mortgage....

100k is more use to them now than drip fed over 20 years...

You are making assumptions that the OP will never move house

Banks would only offer settlement discounts if you are seriously in arrears and the security is less than the balance and there is little hope of them recovering the balance. There is a great fear of strategic default and word-of-mouth write-offs in the sector

hognef

g0g wrote: »

I thought I remember reading a similar thread previously and the consensus of putting against mortgage was to keep the term and reduce payments rather than reduce term? Would the choice between the two vary based on interest rate? i.e. If interest rate were 3.8% would the advice be the same?

Reduce payments, but keep paying the original amount. Will add up to exactly the same as reducing the term, but gives you the flexibility to reduce payments if, in the future, your ability to pay is reduced.

pxdf9i5cmoavkz

You have to think long term.

Having been a home owner in another country, I have always believed, and still do, that you should always pay your home loan off in as little time as possible. The sooner you finish paying off a large debt the more secure you'll be financially, mentally and emotionally should something happen.

Whilst your interest rate is rather low, it's still an interest rate that is not making you any money. You will always want your money to make more money for you in the long term without having a large debt offsetting any interest you gain from savings.

The only time paying off your home could backfire is if your home sinks into negative equity, however, that is always a risk. So f it...