Putting all of savings into mortgage

Mortgageman321

Got a mortgage of €190,000 a few months back and in the fortunate position of having a spare €10,000. I'm currently on a 3 year fixed with BOI.

Would I be best to put the 10k against the mortgage or keep a nest egg? I called BOI and to my surprise, even though I'm on a fixed, I can pay a lump sum off my mortgage without any breakage fees. However that can change on a daily basis according to the person on the phone.

That's pretty much all my savings however I've rented out a few rooms and have €1,200 in rent coming in each month. So provided the tenants stay I should be able to build back up the money within 8 months. Obviously my salary too but that's going on all sorts of house goods for the next 3-6 months.

blindside88

I wouldn’t pay it off just yet, a good rule of thumb is to have 3 times your monthly salary in savings for emergencies. Give it a few months and build the savings further, then look into paying a chunk off the mortgage if you wish which will still allow you to keep a nest egg. If you have any other borrowings clear these first as the interest will be higher

Water John

I think there is a rule of thumb, that you should have three months income in a , rainy day fund, six months if self employed.
Wait the 8 months, then put 10K of the 20K you have against the mortgage.

Another option is to regularly make extra payments, each year, when you can. The big advantage of any of these extra payments is, that it's directly reducing the mortgage capital sum and so shortening the length of your loan, quite considerably.

Mortgageman321

Thanks for this. Think I've the old irish mentality of trying to pay of the mortgage asap and hoping for the best along the way.

It's just paying 10k off the mortgage at 3% interest appears so attractive at the minute. I'm now overpaying 10% on the fixed rate so would love to have two good years at paying back big sums to help myself later down the line.

Water John

Remember, most of the payments on the back end of a loan are interest. Thus if you can reduce the amount of capital, it shortens the period of the loan. For example, if you shorten it by 5 years. Its five years interest you will save.

893bet

1200 a month rent is bad amount as you lose out on the rent a room relief!

Needs to be 1166 or less to qualify. If more than this you pay tax on the entire amount.

Water John

Well spotted.

movi_1985

Hi,

I recently got a mortgage approved with AIB. I have a lump sum saved as deposit and bank asks for proof of how I build up the deposit in time. The money were saved before coming to Ireland, in a different country. I do not have any bank history showing how the money were send monthly to my account by employer, because I was getting my salary in hand.

Any suggestions of how I could still prove the build up of my deposit? Why is the bank looking at the build up? Anybody in same situation?

Thanks for help!

Water John

Maybe not a complete answer, but the focus for the bank is, can you pay the monthly amounts of the mortgage out of your present salary, going forward?
I suspect many have other family members giving them the deposit. Have done that myself. The family member had done some savings as well as paying rent. But they had used the savings, on a holiday. If you can get a helpful staff member, they'll square it out for you.
So lots of people, don't know and mess up a bit on what the banks want exactly.
They want 6 months savings in a stand alone account. All other methods require a bit of tweaking by staff, to fulfil the criteria. Might be a supporting letter, or such from the staff member, to the central decision making forum.

worker bee

As far as I know the banks ask that if you are overpaying a lump sum on a mortgage that you do so by a minimum of €2,000.

So maybe you could pay off €2,000 every few months instead. That way you are building up the money as you are paying it off and will still have your 'nest egg' if ever needed.

I have done this a few times in the past and have noticed that even paying off €2,000 now means a saving of up to 3 months off the term of my mortgage.

It is nice to see those months coming down.

Well done.

TeaBagMania

Split the 10K, keep five in savings and apply the other half to the mortgage principal, be certain they apply it to the principal only and get a receipt showing such
All the best

Mortgageman321

893bet wrote: »

1200 a month rent is bad amount as you lose out on the rent a room relief!

Needs to be 1166 or less to qualify. If more than this you pay tax on the entire amount.

Well spotted indeed. Apologies I didn't explain myself adequately. The rent is €1100 and bills are €50 X 2 so an extra €100 making it €1200 in total.

Mortgageman321

TeaBagMania wrote: »

Split the 10K, keep five in savings and apply the other half to the mortgage principal, be certain they apply it to the principal only and get a receipt showing such
All the best

Yes, I'm siding to go down this route. I've been told about asking the bank to take it off the principal. I thought banks would automatically take it off the principal? Pretty nasty if they don't.

blindside88

Mortgageman321 wrote: »

Well spotted indeed. Apologies I didn't explain myself adequately. The rent is €1100 and bills are €50 X 2 so an extra €100 making it €1200 in total.

This still puts you over the limit, you would be well advised to reduce the rent or not charge them for bills

wyf437gn6btzue

Mortgageman321 wrote: »

I thought banks would automatically take it off the principal? Pretty nasty if they don't.

banks arent really known for their ability to trade ethically, I`d be more surprised if they actually automatically put it off the principal.

I`d say split your 10k and put 5 off the principal. You've a decent income coming off the rooms, I`d say make hay while the sun shines with that and put part of that towards the mortgage too.

Fair play, you seem to have your head screwed on. Best of luck with the house.

One_Of_Shanks

Mortgageman321 wrote: »

Thanks for this. Think I've the old irish mentality of trying to pay of the mortgage asap and hoping for the best along the way.

Ha, I wouldn't be the most financially prudent chap but I read this post and had to say something.

I'd be guilty of what you described above.

We sold our place 2 and a half years ago and took the balance from the sale and then took out a mortgage on our new country home of over 100k and decided to put every cent we could spare get towards paying it off urgently.

We've 15,500 left now and hope to have it cleared mid Summer.

I won't lie, it's scary having so little in the account in case anything goes wrong, which it could yet. And we dont get out much.

Any advice we got before deciding was 100% that you keep it sensible like previous advice you got here. Sound advice.

On the other hand, if nothing goes wrong then I'll be buying a big bottle of champagne mid Summer

What I will say is that if you set your mind to really clearing a mortgage fast then it can be done, and if you don't then you'll probably flitter away a lot of money on random stuff without realising.

Mortgageman321

893bet wrote: »

1200 a month rent is bad amount as you lose out on the rent a room relief!

Needs to be 1166 or less to qualify. If more than this you pay tax on the entire amount.

Another question the rent is €1100, so €550 each. However does bill money get included in the €14,000? I thought this was aside from the €14,000?

It's really for a cleaner, Netflixs and Internet rather than elect & gas as its kinda of included. Would the tax man get me for this?

raxy

If i had 1200 a month in rent id pay the 10k off the mortgage. Savings can build up quick enough again from the rent after.
10k off your mortgage will save about 20k in interest off the mortgage.

OU812

893bet wrote: »

1200 a month rent is bad amount as you lose out on the rent a room relief!

Needs to be 1166 or less to qualify. If more than this you pay tax on the entire amount.

Anywhere quotable on that amount? The revenue site has a figure of €12,000 a year. https://www.revenue.ie/en/personal-tax-credits-reliefs-and-exemptions/land-and-property/rent-a-room-relief/how-is-relief-granted.aspx

wench

OU812 wrote: »

Anywhere quotable on that amount? The revenue site has a figure of €12,000 a year. https://www.revenue.ie/en/personal-tax-credits-reliefs-and-exemptions/land-and-property/rent-a-room-relief/how-is-relief-granted.aspx

It has gone up since then, €14,000 is now exempt

http://www.citizensinformation.ie/en/housing/owning_a_home/home_owners/rent_a_room_scheme.html

Water John

Raxy, all personal finance advisers would disagree with you. Put the 3 months salary aside for the rainy day. That isn't a big encumbrance, esp as OP has it already. Then he piles all the spare money he has, against the capital.

The whole point of a rainy day fund is, if things for some unknown reason go, tits up. You can't take it back out of the mortgage, having put it in there.

bilbot79

If you can get a kbc extra regular saver you're rate is 2.5%. after dirt this rate will be 1.5 or something like that. I presume your mortgage rate is between 3-4%. So while you are taking an interest penalty by not paying off the mortgage and putting the cash in savings it's potentially only a 1.5% penalty which is very much worth it to have a rainy day pot in the background.

OU812

wench wrote: »

It has gone up since then, €14,000 is now exempt

http://www.citizensinformation.ie/en/housing/owning_a_home/home_owners/rent_a_room_scheme.html

So 983Bet's Information above is incorrect???

893bet wrote: »

1200 a month rent is bad amount as you lose out on the rent a room relief!

Needs to be 1166 or less to qualify. If more than this you pay tax on the entire amount.

Sleeper12

I'd be expecting higher interest rates in three years time. Interest rates are at their lowest in history. It's worth keeping this in mind

wench

OU812 wrote: »

So 983Bet's Information above is incorrect???

No, 983Bet is correct.
1166 x 12 months = 13992 which would keep them under the annual limit.

myshirt

Yeah that's right, you owe tax on the lot at your marginal rate (40%?). Interest and penalties could double the amount you owe if you don't sort it, so I'd get on top of it straight away. If you ever got assessed, they are reasonable in that they will issue an instruction to your employer to take it from your wages at source if you didn't have a lump sum, but still not nice to be dealing with large payments getting deducted each month. It isn't like the welfare system where you can pay it off at a low rate like 50 a week.

famagusta

OP, you said you were on a three year fixed. The bank can have a penalty imposed if you make changes during this period (ie paying off a lump of mortgage).
I would hold off until the fixed term is over and reevaluate then..

raxy

Water John wrote: »

Raxy, all personal finance advisers would disagree with you. Put the 3 months salary aside for the rainy day. That isn't a big encumbrance, esp as OP has it already. Then he piles all the spare money he has, against the capital.

The whole point of a rainy day fund is, if things for some unknown reason go, tits up. You can't take it back out of the mortgage, having put it in there.

All financial advisors can disagree all they like. The option asked for opinions on what to do. Plenty have their opinion on keeping it for a rainy day. I have a different opinion so decided to give it. It's an opinion & just because it's not yours it doesn't make it wrong!

The op is making more in rent then his mortgage would cost. He is obviously working too so it doesn't sound like he's too vulnerable and can afford to take a bit of risk.
The savings in interest payments would be huge compared to what 10k will earn in a savings account.

Mortgageman321

I'll try to cover the points above:

Yes - I'm on a 3 year fixed on 3% interest. I rang the bank and they said currently there's no additional fees if I wanted to pay additional lump sum amounts off my mortgage however that can change on a daily basis.

On a side note I've looked into the AIB variable rate of 2.75 and KBC 10 year fixed at 2.95 as I've a feeling interest rates will rise in about 12 months but what do I really know.

Trying to save to from my salary but difficult at the minute as I've biggish purchases for the next 2-3 months at least, however after that I should be able to start saving more from that source of income. It's just the first 3-6 months are tightish but really not that bad.

I'm current below the €1166 threshold however with bill money from the two tenants it would rise to €1200 a month, I thought bill money was outside the €14,000? Is that not the case?

Bubbaclaus

Mortgageman321 wrote: »

I'm current below the €1166 threshold however with bill money from the two tenants it would rise to €1200 a month, I thought bill money was outside the €14,000? Is that not the case?

14,000 limit is for everything you get from them, including bills.