Paying off chunk of mortgage

mrcheez

mrcheez wrote: »

So plan is, pay off a chunk of the mortgage (maybe 30-40K) then switch to 3 year fixed at 3.1%.

Whether I shorten the term or lessen monthly payments (and putting difference into ETF investments/Pension) is my next consideration.

Just following up on this, I found excellent calculators here:

http://www.consumerhelp.ie/rate-change-calculator
and
http://www.consumerhelp.ie/extra-repayments-calculator

I couldn't quite follow Karl Jeacle's one (https://www.drcalculator.com/mortgage/ie/) but the consumerhelp ones are nice and clear.

I can clearly see the difference between shortening the term and lessening the monthly payments: I save approximately 50% more by shortening the term. So that's that settled.

The next thing is deciding between a lump sum of 30K and 40K.

Lowering interest rate to 3.1% and paying following lump sums (assuming I keep the monthly payments the same as current)....

0K lump sum results in 40K off the total cost of my mortgage.
10K lump sum results in 46K off the total cost of my mortgage. (6K for 10K) (+6)
20K lump sum results in 52K off the total cost of my mortgage. (12K for 20K)(+6)
30K lump sum results in 57K off the total cost of my mortgage. (17K for 30K)(+5)
40K lump sum results in 65K off the total cost of my mortgage. (25K for 40K)(+8!)
50K lump sum results in 70K off the total cost of my mortgage. (30K for 50K)(+5)
...and so on...

So roughly speaking, for every 10K lump sum, you pay 5K less overall (apart from the odd blip I noticed with a 40K lump sum which seemed to result in a greater overall saving)

So the question is, on average can I expect a greater than 50% return on ETFs after taxes, or is it best use of every 10K I get to save another 5K off the mortgage payments?

ixus

Difficult to tell. If the 10k meant being mortgage free in 20 yrs v 22yrs and age etc might have an influence.

Compulsory pensions are coming. Maybe prepare for having to contribute 5/10% per annum.

In terms of markets, i think you will be hard pushed, or it will take a long time to achieve 50%(taking tax into account) from where the markets are currently. Averaging over a 15/20yr period may achieve this. Who knows.

mrcheez

ixus wrote: »

Say you shorten the term by 5yrs or whatever you can do. Work out the interest saved i.e. interest you would pay on a 20 v 25yr mortgage. Then, figure out what you would have in 20yrs by putting into a pension.

Just on this point... I'm reading about the pension side of things now and I see that you are only permitted to put in up to 20-25% of your income into a pension to claim tax relief (from age 39+).

So, assuming I've no bother putting 25% of my income aside for a pension, how could I use the lump sum amount (that I was going to use for the mortgage) toward the pension as well?

From what I can see I can't and I'm better off using the 30-40K to save a lot of future mortgage interest payments rather than use it toward my pension?

ixus

You might be able to put a lump sum in for 2016 now.

There is also an Executive/Director pension that allows greater contributions if you are a more valued employee.

Sun Bus Post discusses pensions, Michael Murray highlights how fees really eat into them.

mrcheez

ixus wrote: »

You might be able to put a lump sum in for 2016 now.

OK thanks. I'll factor in holding back some to cover a lump sum payment for a 2016 pension, and the rest can go toward the mortgage.

mrcheez

ixus wrote: »

You might be able to put a lump sum in for 2016 now.

Actually where you say I "might" be able to pay in a lump sum for 2016, is this not a certainty, or is it possible I might not be allowed to do it?

Cute Hoor

mrcheez wrote: »

Actually where you say I "might" be able to pay in a lump sum for 2016, is this not a certainty, or is it possible I might not be allowed to do it?

http://www.pensionsauthority.ie/en/LifeCycle/Tax/Tax_relief_on_contributions/

mrcheez

Cute Hoor wrote: »

http://www.pensionsauthority.ie/en/LifeCycle/Tax/Tax_relief_on_contributions/

So I take it that's a yes and I can pay lump sums into my pension up to the limits per year?

Could one do this every year if they preferred (pay the whole annual balance into the pension by October 31st and for the rest of the year use that amount towards something else like an ETF for November - October), or does it have to be gradually paid each month?

ixus

You want to have something like a self directed pension where you can put a once of balance into cash and then move units of cash into other assets on a monthly or irregular basis? At least that sounds like what you are talking about.

Read up on self directed pensions.

mrcheez

ixus wrote: »

You want to have something like a self directed pension where you can put a once of balance into cash and then move units of cash into other assets on a monthly or irregular basis? At least that sounds like what you are talking about.

Read up on self directed pensions.

Cheers. Is the tax relief the same whether I pay in the annual amount in one go, vs monthly?

Any particular benefits of one over the other? I can see the once-off method being more beneficial since you have more cash in the meantime to invest or gain interest?