To clear mortgage or not

podge018 · 08-01-2019 12:48pm #1

Quick summation of what is happening in our life.

Married with 2 kids under 2 and a half.

My income appox 60k, wife 50k.

Mortgage outstanding of 170k, 25 years left, repayments 800p.m. fixed for 5 years @ 2.8% I think, since September.

Creche fees 600p.m, doubling soon when youngest starts but reducing a bit in September when eldest starts the ECCE pre-school scheme.

Mortgage protection (serious illness cover) recently paid out to us and not the mortgage provider. So we now have 170k and unsure what do with it. First thoughts were to clear the mortgage - what else, but most people we've talked to says that would be crazy. Health isn't a concern now, fingers crossed.

Spoke with somebody in financial services and he was talking about buying 5/10 year bonds, which I know little about, but that there's a risk involved. There's An Post too, which should be okay.

We would like to build an extension on the house now while kids are young and my wife would ideally like to take career break until youngest starts school proper in September 2022. One of us wouldn't get further mortgage approval for 5 years due to the serious illness diagnosis.

Finding this all very overwhelming and know it's going to be a decision we have to live with for the rest of our lives.

If this happened you what would your gut tell you? Have to say mine was to just clear the mortgage, but then I know we'll never have so much money at our disposal ever again in our lives.

ste · 08-01-2019 12:59pm

I can relate somewhat and my advice is to just relax and sit on it for the moment.
I also would stop discussiong it with people - everyone always has a view to share

I would split money to ensure covered by bank guarantee
https://www.centralbank.ie/consumer-hub/deposit-guarantee-scheme

I would start a list of what you might spend your money on and just come back to it whenever the mood takes over the next few months.

Now relax and carry on. Youll both figure out what you want to do when you take the pressure off. Also there is noghing wrong with just leaving it in the bank. Peace of mind is worth a lot.

And take a nice holiday and buy something nice for yourselves!

Alkers · 08-01-2019 1:20pm

It's not all or nothing either, you could for example clear half the mortgage but keep the remaining term, leaving the monthly repayments around half what they are currently. More manageable monthly outgoings and still a bit of a lump sum.

wench · 08-01-2019 2:42pm

How does this affect the death payout element? Is that separate and still in effect, or has the policy now paid out all it will?

Dardania · 08-01-2019 2:46pm

wench wrote: »

How does this affect the death payout element? Is that separate and still in effect, or has the policy now paid out all it will?

Stupid question - do you have to pay income tax on that?

If so, maybe you could top up your pension a little bit to offset also

podge018 · 08-01-2019 3:31pm

wench wrote: »

How does this affect the death payout element? Is that separate and still in effect, or has the policy now paid out all it will?

Policy has fully paid out, end of story.

They made a mistake when setting it up and it should have been assigned to the mortgage provider, not us. We'd have no say then and would be mortgage free.
It seems it's quite rare that we get the money to do with what we want.

podge018 · 08-01-2019 3:31pm

Dardania wrote: »

Stupid question - do you have to pay income tax on that?

If so, maybe you could top up your pension a little bit to offset also

No, don't have to pay tax.

wench · 08-01-2019 3:35pm

podge018 wrote: »

Policy has fully paid out, end of story.

They made a mistake when setting it up and it should have been assigned to the mortgage provider, not us. We'd have no say then and would be mortgage free.
It seems it's quite rare that we get the money to do with what we want.

Then you need to think carefully before doing anything other than paying off the mortgage.
If you were to pour it into an extension, and then one of you were to be run over by a bus, would that leave the survivor up the creek with a mortgage they can't pay?

Wildly Boaring · 08-01-2019 3:36pm

Lifestyle wise any inclination to pay the mortgage off and either one of ye take a few years away from work?

Mortgage plus creche would surely take up a wage.

Much better quality of life

Paul_Mc1988 · 08-01-2019 4:47pm

wench wrote:

Then you need to think carefully before doing anything other than paying off the mortgage. If you were to pour it into an extension, and then one of you were to be run over by a bus, would that leave the survivor up the creek with a mortgage they can't pay?

I would agree with this. At least use half the money to pay of half the mortgage and the outstanding to build the extension. This provides future cover if something were ever to happen to either of you.

podge018 · 08-01-2019 5:33pm

wench wrote: »

Then you need to think carefully before doing anything other than paying off the mortgage.
If you were to pour it into an extension, and then one of you were to be run over by a bus, would that leave the survivor up the creek with a mortgage they can't pay?

I know, that's the quandary. There is the option there for the other person to take out mortgage protection cover for the amount and term left though.

py · 08-01-2019 5:45pm

Pay off the mortgage. Means you own your house and never have to pay another cent to the bank for it.

Family member received inheritance and ploughed the whole lot in to a big extension for their existing house instead of paying their mortgage down. The sole earner in the family became seriously ill and now the banks have been chasing them for 5-6 years to repossess it. It's possibly an edge case but if it were me after seeing what happened, I'd pay the mortgage down without a 2nd thought.

Feisar · 08-01-2019 5:56pm

If someone handed me €170K it'd be bye bye mortgage.

whiskeyman · 08-01-2019 6:00pm

How much is extension going to cost?
I know clearing down mortgage is often said, but it's probably the cheapest loan you'll have.
May be worth clearing some of it depending on the extension.
Is that extension really needed though? Any other upgrades required?

quagmire47 · 08-01-2019 6:08pm

If it were me, I'd be straight down to the bank to pay off the mortgage. Extra €800 per month in your pocket and saving yourself all that interest you'd pay in the next 25 years.

alwald · 08-01-2019 6:13pm

The 2 best options if I am in your situation:

1 - the most obvious option is to clear the mortgage, the partner can take a career break. You are mortgage free and childcare free. This will allow you to save 800 EUR a month towards an extension and build it when you have the funds.

2 - Pay off a big chunk of the mortgage so as you are left with 5 years only @ a fixed rate of 2.8% and use the rest to build an extension.

What if your bank will be notified of this 170k payment what will happen then?

ArrBee · 08-01-2019 6:18pm

Can you even clear it when you are on a fixed rate?

Seems odd to have the insurance pay out yet your still working?

Anyway, I'd be inclined to pay off mortgage if there was no penalty to do so, then look to re-mortgage for the extension and take out protection insurance on the new mortgage maybe?

ELM327 · 08-01-2019 6:28pm

If you're not clearing the mortgage I'd suggest a sanity check quite frankly (not literally, figure of speech but still)

manu2009 · 08-01-2019 6:34pm

Clear your mortgage, why give the bank more money on interest when you have the opportunity not to!

TeaBagMania · 08-01-2019 6:36pm

im with the lot of clearing the mortgage, you might be thinking of adding an extension now but your kids are still little.
In five years you can save a bit and use the equity in your house to upgrade to a larger house

ELM327 · 08-01-2019 6:52pm

In my opinion you've got two real options here.
1 - the sensible option, clear the mortgage, easy life, less stress, take time out of work to look after kids etc

2 - the radical option. Use the 170k as collateral for a 1:5 leveraged investment in commercial rental property CFD. I'd love to have the balls to do this if I were in that scenario but I don't think I would.

Feisar · 08-01-2019 7:13pm

Actually scrap my previous about clearing the mortgage.

Find a good financial advisor, spend a few bob on them and then decide.

rgunning · 08-01-2019 7:26pm

podge018 wrote: »

I know, that's the quandary. There is the option there for the other person to take out mortgage protection cover for the amount and term left though.

My worry for you (if you don't pay off the mortgage), is that regardless of the error that your insurer made in who the payout was meant to be paid out to, was the intent for it for it clear (i.e. was this specifically bought as mortgage protection). I feel this would have no bearing on whatever happens if everyone stays healthy and well. In the case where you take out new cover, and this ensurer is required to pay out, and they see that you already received payment to clear said mortgage (which you didn't clear), I would feel they might try to stall to see if they legally have to pay out.

Rather than go to a financial advisor (whose only interest would be to get you the greatest return on the sum), I would consider talking to a solicitor (who has a different interest than a financial advisor) to ensure that there are no implications to not clearing the mortgage.

To be clear, I am not suggesting that there would be any dishonesty in not clearing the mortgage, I would just not want to be in the situation where an insurer has a possibility to legally challenge a further payout if you re-insured.

Henry Ford III · 08-01-2019 7:28pm

Feisar wrote: »

If someone handed me €170K it'd be bye bye mortgage.

If someone handed me €170k it'd be buenos dias Espana

Henry Ford III · 08-01-2019 7:30pm

ELM327 wrote: »

...the radical option. Use the 170k as collateral for a 1:5 leveraged investment in commercial rental property CFD. I'd love to have the balls to do this if I were in that scenario but I don't think I would.

It's very risky in the circumstances.

The ideal solution is to invest and try to earn more net than the carrying cost of the mortgage.

Trouble is there'll be risk involved in this too.

1hnr79jr65 · 08-01-2019 7:31pm

Straight up i would pay off the mortgage for immediate security. Nice not having a large debt hanging over your head and would leave alot more disposable income which can be saved and/or invested to steadily grow your bank account.

Easier to risk some money when you have no large risk hanging over you such as mortgage.

Feisar · 08-01-2019 7:35pm

Henry Ford III wrote: »

It's very risky in the circumstances.

The ideal solution is to invest and try to earn more net than the carrying cost of the mortgage.

Trouble is there'll be risk involved in this too.

How often does one get to invest €170K that gives €800 a month risk free for 25 years? The OP can do this by clearing the mortgage.

€800x12x25=€240K

Henry Ford III · 08-01-2019 7:37pm

Feisar wrote: »

How often does one get to invest €170K that gives €800 a month risk free for 25 years? The OP can do this by clearing the mortgage.

€800x12x25=€240K

I did mention there would be risk involved.

p.s. Pity that back to back (or offset)
mortgages are no longer (I think) available.

Feisar · 08-01-2019 7:40pm

Sorry, forgot to mention, best of luck OP

crustybla · 08-01-2019 7:46pm

We had a payout a couple of years ago. We cleared the mortgage. We often think of what we could do with that money now but we always come back to relief that we did pay it off. You are both working and could afford to save more. A mortgage can really hold people back. There's a real sense of comfort, even on your broke days when you can say you actually own your own home!
Best of luck with whatever you do and continued health to you both.

Sleeper12 · 08-01-2019 7:49pm

This is a no brainer imo. You got a windfall so to speak. You got it to pay the mortgage off. I'm really not sure why you'd to do anything else with it.

As someone who is mortgage free I can promise you that there is no better feeling than being mortgage free. Knowing that you actually do own your own home rather than the bank owning it for decades. There is nothing stopping you from clearing the mortgage & continuing to save your monthly mortgage amount.

Have you totalled the amount you will pay over the duration of the remaining mortgage time & worked out how much more than 170k you will pay? Even at the 2.75 percent fixed rate? Interest rates are still historically low in Europe. When the EU economy kicks off again rates can only go higher. Chances are that your payments will increase in 5 years.

I can't stress this enough, there is no better feeling in the world knowing that you own your own home.

To clear mortgage or not

Comments