Pay lump sum off mortgage vs pay into pension vs investments

St1mpMeister

My Rabodirect investment account is closing so I'll have around 80K to play with and re-invest.
I'm 39 and have no pension (beyond the basic PAYE one)

So, I have a few options I believe...

- Pay a lump sum off my mortgage (reducing the monthly interest payments by approx €400)

- Start a pension and pay into it

- Reinvest the money in EF funds (although I don't have too much time to really investigate the funds).


My thinking so far is to perhaps pay €50K off my mortgage and put the other €30K into either pension or investments? Any thoughts?

homer911

Does your employer offer a pension? Depending on your income, and the manageability of your debts, backdate as much as you can into a 2016 pension and put the rest into 2017. Use the tax refund/tax relief to pay down the mortgage, or also contribute this to your pension

St1mpMeister

homer911 wrote: »

Does your employer offer a pension?

Nope, I've actually never worked for an employer that's offered a pension, also I was self-employed for about 8 years.

homer911 wrote: »

Depending on your income, and the manageability of your debts, backdate as much as you can into a 2016 pension and put the rest into 2017. Use the tax refund/tax relief to pay down the mortgage, or also contribute this to your pension

OK thanks will look into it. The only debt I have is the mortgage (no car loan etc). Any recommendations on who to go for when starting a pension?

newacc2015

Whats your mortgage interest rate? What is your LTV on it?

St1mpMeister

newacc2015 wrote: »

Whats your mortgage interest rate? What is your LTV on it?

4.3% variable at the moment, but considering moving it to a 3 year fixed which will be 3.1%

LTV was 43%

If I pay off €50K, and move to 3 year fixed the monthly payments drop by €400, which is not bad!

newacc2015

St1mpMeister wrote: »

4.3% variable at the moment, but considering moving it to a 3 year fixed which will be 3.1%

LTV was 43%

If I pay off €50K, and move to 3 year fixed the monthly payments drop by €400, which is not bad!

You can refinance to AIB and get 3.1% variable without fixing at that LTV. It makes no sense to fix with no sign of rate hikes on the horizon. I would refinance to AIB at that rate. KBC is marginally better, but they dont like to pass on rate cuts to existing customers.

It makes sense to reduce your mortgage, so that you devote more of your income to a proper pension contribution as its tax efficient. But I dont know if I would put 50k towards it.

Honestly I would put your situation on askaboutmoney. There are so many great financial advisors/mortgage brokers on it.

There isnt much research to put into ETFs. Just put it in an S&P500 one. Although the market seems a bit inflated at the moment, so I would hold off

St1mpMeister

Another option was to purchase an investment property, but afaik gains are marginal around retirement age (or non-existent if I sell it before retiring, due to the hassle).

Interesting article: http://www.irishtimes.com/business/personal-finance/property-or-a-pension-where-can-you-get-a-better-return-1.2945443

So my thinking is pension + ETF is more likely to give better return than investment property?

newacc2015

St1mpMeister wrote: »

Another option was to purchase an investment property, but afaik gains are marginal around retirement age (or non-existent if I sell it before retiring, due to the hassle).

Interesting article: http://www.irishtimes.com/business/personal-finance/property-or-a-pension-where-can-you-get-a-better-return-1.2945443

So my thinking is pension + ETF is more likely to give better return than investment property?

Investment property is another option actually. A non-bank lender is ramping up their lending and while their rates high, they arent as bank as banks

http://icsmortgages.ie/buy-to-let/

You might find some value as landlords I imagine will be exiting due to the rent controls. You need to factor in rent increases won't be steep as before. IMO you only make money on a BTL managing it yourself. An agent will take 15% for doing very little.

You could pick up a decent BTL property with a deposit of that size. I would only buy in Dublin City and yields are higher on the northside.

Regardless of what you do, I would refinance your mortgage ASAP as it can take several months to do. It is not time consuming personally ie I heard paper work etc only takes about 4/5 hours to complete, going to solicitors etc. It just takes forever for banks to remove charges, hand over docs etc

St1mpMeister

newacc2015 wrote: »

Regardless of what you do, I would refinance your mortgage ASAP as it can take several months to do. It is not time consuming personally ie I heard paper work etc only takes about 4/5 hours to complete, going to solicitors etc. It just takes forever for banks to remove charges, hand over docs etc

Hmm interesting. Switching to the 3.1% 3 year fixed rate can be done in a matter of days though and can be in effect for my March 1st mortgage payment, would it really be worth my while moving to AIB if it's 3.1% variable at the moment?

I mean is it likely to remain around 3% variable for next 3 years, or likely to drop a lot more? Of course there is the risk of it going above 3.1.

If it takes months to switch it might just make more economic sense to switch now and get the savings instantly.

newacc2015

St1mpMeister wrote: »

Hmm interesting. Switching to the 3.1% 3 year fixed rate can be done in a matter of days though and can be in effect for my March 1st mortgage payment, would it really be worth my while moving to AIB if it's 3.1% variable at the moment?

I mean is it likely to remain around 3% variable for next 3 years, or likely to drop a lot more? Of course there is the risk of it going above 3.1.

If it takes months to switch it might just make more economic sense to switch now and get the savings instantly.

Yes, as rates have been falling for the last few years. KBC is announcing its 'plan' for Ireland next month. There is rumours they are going to ramp up lending here and possibly start being more competitive on rates. I would not go for KBC as they dont pass rate cuts onto existing customers, whereas AIB do or it might be EBS. But one of them those.

People are expecting rates to stay the same for the next 2/3 years ie the ECB will not hike rates. You are better to be variable at 3.1% for the next few years with a drop of 0.25-0.5% in variable rates, then fix when the rumours of an ECB hike are real.

There are plenty of better fix rates than 3.1% if you want to fix

http://www.bonkers.ie/compare-mortgages/

Have you called your bank telling them you are going to switch unless they give you a rate cut? You might get a variable cut immediately and then switch anyway. The fact variable rates are a premium to fixed makes a lot people (including me) think that the banks are going to keep cutting variable rates. Even at 3.1% fixed you can do better from the likes of KBC( they are ruthless with lenders though, so are pepper)

CIARAN_BOYLE

Assuming you earn above 33800 I wold make a pension contributions that would maximise tax relief at the higher rate for 2016 and 2017.

The remainder +(tax relief) depending on your risk appetite I would split between paying off your mortgage and investments.