What to do with large lump of money

c.p.w.g.w

So long story short...

As it stands:
Mortgage Remaining €88,500
Mortgage Rate 2.9%
Home Valuation at purchase €104,000
Current Home Valuation(Estimate) €160,000*

Cash on hand €60,000

Joint Income is €75,000 per year

Our long term aim is to move to a more rural area, so are we better off paying off a chunk? Or keeping the money in case a good opportunity arrives in a more rural area?

*That has been arrived as sales of nearby houses and sale agreed of houses within the same estate and in and around that price...I had it unofficially valued at €185,000 in February

Black_Knight

When do you think you might be moving home? Second time buyer would require a 20% deposit, so time line and ability to save (should you spend some of the lump sum in the mean time) should be factored in.

Do you plan to sell the current house or keep it and rent it?

Are you subject to penalties if you overpay?

It's that large lump just accumulated savings or did you inherit it? Is that all your savings?

What are you saving month on month?

punisher5112

Put the money into the new home but keep a portion for retirement and actually enjoy yourselves.

Hollybeg

c.p.w.g.w wrote: »

So long story short...

As it stands:
Mortgage Remaining €88,500
Mortgage Rate 2.9%
Home Valuation at purchase €104,000
Current Home Valuation(Estimate) €160,000*

Cash on hand €60,000

Joint Income is €75,000 per year

Our long term aim is to move to a more rural area, so are we better off paying off a chunk? Or keeping the money in case a good opportunity arrives in a more rural area?

*That has been arrived as sales of nearby houses and sale agreed of houses within the same estate and in and around that price...I had it unofficially valued at €185,000 in February

The obvious first thought is that you appear to be lowly borrowed but difficult to say without further info in fairness. With household earnings of 75k p.a, based on mortgage multiples, assuming no debt or dependants and correct age profile, you could borrow up to 262.5k (Income x 3.5). You have to remember that if you move rural, you will need a 20% deposit for a mortgage next time round. I doubt a bank would turn you away if you said you wanted to hold on to your existing house as you appear to have the capacity to comfortably take on more debt. Of course, the hassle of a second house (for rent) is not to be taken lightly.

However, I would be inclined to hold on to your cash and see if you could accelerate repayments on your mortgage from your earned income in the short to medium term (looks like you dont have your mortgage too long). I would not be in a rush to pay down your mortgage too quickly, a mortgage is the cheapest money you will ever borrow. And theres no point having all your cash tied up in your house either as anything could happen in the future.

Black_Knight

Having 75k sitting around doing nothing while paying 2.9% on 88k is a bit silly, unless you've an imminent plan for that 75k. It's losing money in the bank.

IMO, depending on when you think you'll move, take a rainy day sum out of the 75k (6 months expenses should you lose your jobs), figure out a timeline when you'll buy a house and what deposit you'll likely need (eg. Need 40k deposit in 1 year, and saving 1k a month = 28k from the lump + 12 savings over 12 months + some additional funds for fees).

After those 2, do as you wish. You could reduce your debt on that 2.9% interest, or maybe max out pension contributions (they're tax free) in lieu of savings.

Oral Surgeon

c.p.w.g.w wrote: »

So long story short...

As it stands:
Mortgage Remaining €88,500
Mortgage Rate 2.9%
Home Valuation at purchase €104,000
Current Home Valuation(Estimate) €160,000*

Cash on hand €60,000

Joint Income is €75,000 per year

Our long term aim is to move to a more rural area, so are we better off paying off a chunk? Or keeping the money in case a good opportunity arrives in a more rural area?

*That has been arrived as sales of nearby houses and sale agreed of houses within the same estate and in and around that price...I had it unofficially valued at €185,000 in February

Buy a new car!:cool:

c.p.w.g.w

Black_Knight wrote: »

When do you think you might be moving home? Second time buyer would require a 20% deposit, so time line and ability to save (should you spend some of the lump sum in the mean time) should be factored in.

Do you plan to sell the current house or keep it and rent it? Initially Keep it, one of use will probably stay in it and rent the extra rooms out to family...Its very dependent on location of newer house

Are you subject to penalties if you overpay? We will be out of fixed term in January

It's that large lump just accumulated savings or did you inherit it? Is that all your savings?Its all the savings, so obviously some need to be kept

What are you saving month on month?At the mo, it varies from €500-€1000, as i'm on the TWSS the income is reduced, but still able to safe and due to be back at full wages within 3 weeks

Hollybeg wrote: »

The obvious first thought is that you appear to be lowly borrowed but difficult to say without further info in fairness. No Dependants or other debt

I would not be in a rush to pay down your mortgage too quickly, a mortgage is the cheapest money you will ever borrow.Was thinking that myself, the interest rate is half that of even the best rates you get on loans

Answered the points in red

c.p.w.g.w

Oral Surgeon wrote: »

Buy a new car!:cool:

You talking to my misses...I'm hopeful to have my full licence by years end so will need a car

Jim2007

Cash on hand €60,000

Well if that is all you have then in reality you have about 10k you could safely play around with, if you buy that new car. The reality is that 60k is not a large amount of cash to have on hand in these uncertain times. You need an emergency fund of about 40k. Ideally you’d have that in some kind of money market product rolling it over in 10k blocks, but in reality all you can do is leave it on deposit.

Everyone that has never needed to dip into their emergency fund will tell it’s too much and everyone that needed to will tell you it is not enough! And I have seen too many of the latter due to work. I would say you are in a position where you have a certain amount of flexibility that you should not give up easily.

Q&A

Black_Knight wrote: »

IMO, depending on when you think you'll move, take a rainy day sum out of the 75k (6 months expenses should you lose your jobs), figure out a timeline when you'll buy a house and what deposit you'll likely need (eg. Need 40k deposit in 1 year, and saving 1k a month = 28k from the lump + 12 savings over 12 months + some additional funds for fees).

This would be my advice. Get the money working for you now but not at the expense of future plans.

How much of a rainy day fund you need really depends on what you're comfortable with. It's an insurance policy, the premium for this security is the higher mortgage interest rate expense.

Something to bear in mind when moving is the logistics of buying and selling at the same time. I've heard people trying to close both deals on the same day. No guarantee you can pull out off.

Paying off a larger chunk of your mortgage now will save you interest immediately but may limit your flexibility when it comes to moving. Once you've put the money into the mortgage the only way to get it back is by selling. Going down this route require you to rent between selling and buying.

Regardless of your plans for your current property, If you can plan to purchase without having to sell, it might make life easier in terms of logistics. That would probably require a bigger deposit. The cost of which is higher interest expenses now.

How workable this would be depends on the future purchase price but might be worth considering.