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Child Item

Do you overpay your mortgage?

[Deleted User]

Supposed to be do you overpay... (assuming you have a mortgage, of course).

Massive loans, generally costing at least a hundred grand each in interest alone. I pour every spare cent I can into mine (albeit, my plan is to eventually move elsewhere).

I know one other person who overpays their mortgage by €60 per month. I think the bank let them overpay by €60 on their fixed rate term, so they just keep fixing for 5 years and overpay the €60 each month.

However, almost everyone else I know pays the minimum required, and ignores it, with the attitude being that "sure it's there forever anyway" or "it'll be gone when I'm retired". They couldn't care less if they were paying 3 times the mortgage cost in interest. They know the monthly figure and they're happy to stick with it that way.

Do you bother overpaying? Or do you care at all?

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Blackjack

Wanderer78 wrote: »

in order to simplify the process of credit creation, the term 'double entry....' is used,

by whom?.

[Deleted User]

We need a version of Godwin's Law to describe the way, as an online discussion grows (no matter what subject) someone will arrive with a statement about the disgrace of fiat money creation.

Another one for people giving advice on specific investment strategies (not talking about pointing about the obvious – invest in a pension — but "here's how I got rich from investing, while living in my mother's box room").

I just think if we wanted to know this, we would watch the awful youtube vids.

The J Stands for Jay

Wanderer78 wrote: »

in order to simplify the process of credit creation, the term 'double entry....' is used, im sure the process is more complicated than this, but......

I go to Harvey Norman and buy a laptop and some printer paper for €909. I credit bank €909, debit stationary €10 and debit computer equipment €899. I am now part of a global conspiracy to create money from thin air

silliussoddius

Zinchenko231 wrote: »

It's astonishing that Lehmann Brothers went bankrupt with their ability to create money from thin air.

They had testicles everywhere.

JimmyVik

silliussoddius wrote: »

They had testicles everywhere.

They created testicles from thin air

The J Stands for Jay

Zinchenko231 wrote: »

It's astonishing that Lehmann Brothers went bankrupt with their ability to create money from thin air.

They didn't play ball with a request from lizard people/the Rothschilds/Bill Gates/Big Pharma.

silliussoddius

JimmyVik wrote: »

They created testicles from thin air

Too much double entry

JimmyVik

silliussoddius wrote: »

Too much double entry

:D I got nothin

Amirani

silliussoddius wrote: »

Too much double entry

I think they were doubling entering their double entries, and making derivatives out of them.

Cyrus

Amirani wrote: »

I think they were doubling entering their double entries, and making derivatives out of them.

so they securitised double entry squared?

nice

AAA rated too i assume

Holiday21

There's no point overpaying your mortgage if your rate is 3% or less.
It's free money.
Having said that if I had it (which I dont)I wouldn't put it into a pension as returns not guaranteed.
Do up your house with the money- this adds value and let's you enjoy it!

[Deleted User]

Holiday21 wrote: »

There's no point overpaying your mortgage if your rate is 3% or less.
It's free money.

Rough maths here. Using this calculator, a loan of 200k at 3% is costing you €16.44 in interest daily.

Obviously that amount reduces with the reducing balance, but it's still very expensive.

Leg End Reject

[Deleted User] wrote: »

Rough maths here. Using this calculator, a loan of 200k at 3% is costing you €16.44 in interest daily.

Obviously that amount reduces with the reducing balance, but it's still very expensive.

Exactly, you can't claim it's free money when you have to pay it back with interest.

bilbot79

Louis Friend wrote: »

This is nonsensical.

Repaying mortgage debt at a rate of 3% is like getting a GUARANTEED return of 6-7% on a personally-held investment account.

Tax arises at rates of 33%, 41%, and 52-55%.

Plus it costs money to invest in terms of management fees and transaction charges.

And returns aren’t guaranteed; there is the potential to lose money.

So behind Door A is a guaranteed return of 6-7%, and behind Door B is a potential return or loss; I know which one I’d choose and advise people to choose.

My own approach is simple:

1) Build a cash reserve equal to 6 months’ expenditure
2) Maximise my pension contributions
3) Maximise my mortgage overpayments
4) Invest personal cash

It's more than that if you factor in potential and likely rate rises against the non-overpaid mortgage

[Deleted User]

Holiday21 wrote: »

There's no point overpaying your mortgage if your rate is 3% or less.
It's free money.
Having said that if I had it (which I dont)I wouldn't put it into a pension as returns not guaranteed.
Do up your house with the money- this adds value and let's you enjoy it!

Awful advice tbh.

Bass Reeves

6 wrote: »

Awful advice tbh.

It's not really. Many people get caught up in the total interest bill for a mortgage.interestvrates fir new loans are in the 2-2.5% bracket. At 2.25% on a 300k loan you will pay 84k over 25years. Say your early redemption brings that to 20 years you will save approximately 18k in interest.

A 20k car loan at 7% will cost 3.5k over 5years. A 50k house renovation will cost you 10-12k over 7years. 75k for children's education ( about 50% of projected two children's third level costs) will cost you 15k over 10 years. Any one of these will eat into any interest saved and it may well cost you much more in the long run.

JimmyVik

bilbot79 wrote: »

It's more than that if you factor in potential and likely rate rises against the non-overpaid mortgage

If the the interest rate goes up to a the point where it makes sense to pay off the amount that you have invested then do that.
I suspect you will still be ahead on ETFs vs overpayments at that point.

Eircom_Sucks

i pay €975 on a tracker mortgage

borrowed €305k in 2007

why pay more every month and lessen the quality of life for what 2 or 3 years off the mortgage when im 65

fook that , i wanna live now

Louis Friend

So the average rate for new mortgages these days is 2.8%.

That needs to be paid from after tax earnings.

So, BEST CASE SCENARIO, assuming CGT rates and no costs, a return of 4.2% is required to justify investing.

Or to put it another way, clearing debt that’s costing you 2.8% is the equivalent of a gross return of 4.2% in the parallel universe that some posters occupy where all returns are subject to CGT and investments only go up in value.

In reality, it’s the equivalent of a much higher return.

The key point though is that even if someone was only offering you a guaranteed return of 4.2%, you’d be insane not to take their hand off.

Investing outside of a pension whilst carrying non-tracker mortgage debt is deranged from a financial perspective.

Bass Reeves

Louis Friend wrote: »

So the average rate for new mortgages these days is 2.8%.

That needs to be paid from after tax earnings.

So, BEST CASE SCENARIO, assuming CGT rates and no costs, a return of 4.2% is required to justify investing.

Or to put it another way, clearing debt that’s costing you 2.8% is the equivalent of a gross return of 4.2% in the parallel universe that some posters occupy where all returns are subject to CGT and investments only go up in value.

In reality, it’s the equivalent of a much higher return.

The key point though is that even if someone was only offering you a guaranteed return of 4.2%, you’d be insane not to take their hand off.

Investing outside of a pension whilst carrying non-tracker mortgage debt is deranged from a financial perspective.

You are assuming people can only access invested income at the higher tax rate. This is not true of children's education funds. You also have not allowed for compounding of interest on investments. Opportunity Investments ( such as property) as well work outside these norms. Business investments where you actively manage an investment may seem less attractive but outperform many assumptions you are making

Louis Friend

Bass Reeves wrote: »

You are assuming people can only access invested income at the higher tax rate. This is not true of children's education funds. You also have not allowed for compounding of interest on investments. Opportunity Investments ( such as property) as well work outside these norms. Business investments where you actively manage an investment may seem less attractive but outperform many assumptions you are making

None of that makes any sense.

What’s a “children’s education fund”?

What parallel universe do “opportunity investments” inhabit?

Business investments where you’re actively involved are different so that’s not comparing like with like. Passive investments should only be compared with other passive investments.

I actually manage money for a living…I’m a CFA. My mortgage is at 2.5% and I haven’t a penny invested directly in my own name. Yes, my pension is maxed out, but I lob the spare cash at the mortgage. Given Ireland’s harsh tax regime for private investors and our very high mortgage rates, it’s crazy to invest personally whilst carrying mortgage debt.

thesimpsons

We've overpaid ever since we got our first mortgage anything from 20 pounds (yes I'm that old) a month to several hundred euro defending on circumstances. Just finished off mortgage last month 6 years early so now debt free. Was supposed to spend the spare cash on a blowout holiday - maybe next year!

JimmyVik

I didnt have a mortgage but in 2018 I decided to invest €500 pm in Berkshire hathaway instead of a savings account. (I cant remember if I started with €1000 in it on day one or just €500, but its been €500pm month on the 1st of the month since then anyway.

I just checked today and thats worth over €26k with me paying in €18K. So im about 8K up
I have used up the allowance each year of €2540 so no CGT tax payable of it so far anyway. I will keep using the CGT allowance each year to reduce any tax payable.

If I had paid that off a mortgage at 3% it would have saved me about €1000 or less in interest so far with paying €18K off the mortgage.

Of course its impossible to know if that would continue for another 27 years on a mortgage, but I think the investment would be considerably better than the mortgage over payments for a 30 year time horizon.

And also I have other investments which suck up my years CGT allowance, but that example above is if i just had that investment and dont count the others.
As someone pointed out to me before. If you are making enough to be paying tax its better than not making enough to have to pay tax.

Bass Reeves

Louis Friend wrote: »

None of that makes any sense.

What’s a “children’s education fund”?

What parallel universe do “opportunity investments” inhabit?

Business investments where you’re actively involved are different so that’s not comparing like with like. Passive investments should only be compared with other passive investments.

I actually manage money for a living…I’m a CFA. My mortgage is at 2.5% and I haven’t a penny invested directly in my own name. Yes, my pension is maxed out, but I lob the spare cash at the mortgage. Given Ireland’s harsh tax regime for private investors and our very high mortgage rates, it’s crazy to invest personally whilst carrying mortgage debt.

well I am glad you are not my CFA.

I have gone through the costs to put children through college already in this thread. It will cost in the region of 75K/child. By opening an investment in a child's name and putting money into it it will help to fund college. While most young adults work while going to college they will not use up all there tax Credit. As well some of the the money can be extracted into a normal account pre college. Even if you leave some money in the account till college there highest rate of tax is 20%

Opportunity investment is where you keep saving in a cash form to invest when a down turn happens. This may be into stocks or into property. Last Apri/May If you invested in the Irish banks your return would be above 200%. If you had cash in 2012/2013 you could have bought apartments for the price of a midrange new car today such apartments are worth 4-5 time the cost then. Even as late as 2015/16 you could have bought houses in mid sized county towns for 50-80K that are worth 50% more than that now and you still have to add rental income to the return.

Very little investment is passive. You have to actively look at all investment.

Eircom_Sucks

JimmyVik wrote: »

I didnt have a mortgage but in 2018 I decided to invest €500 pm in Berkshire hathaway instead of a savings account. (I cant remember if I started with €1000 in it on day one or just €500, but its been €500pm month on the 1st of the month since then anyway.

I just checked today and thats worth over €26k with me paying in €18K. So im about 8K up
I have used up the allowance each year of €2540 so no CGT tax payable of it so far anyway. I will keep using the CGT allowance each year to reduce any tax payable.

If I had paid that off a mortgage at 3% it would have saved me about €1000 or less in interest so far with paying €18K off the mortgage.

Of course its impossible to know if that would continue for another 27 years on a mortgage, but I think the investment would be considerably better than the mortgage over payments for a 30 year time horizon.

And also I have other investments which suck up my years CGT allowance, but that example above is if i just had that investment and dont count the others.
As someone pointed out to me before. If you are making enough to be paying tax its better than not making enough to have to pay tax.

well with the " Oracle of Nebraska " on the board it will continue to do well i would think

JimmyVik

Eircom_Sucks wrote: »

well with the " Oracle of Nebraska " on the board it will continue to do well i would think

I dont buy into that he is the only one running that company at all.
What i like about them is that they are very transparent.
But I think ETFs are probably a better way to go once you have enough invested in shares to use up your yearly cgt allowance.

Trigger Happy

I was whupped during the dot com bubble and have stayed well clear of direct investments since then. At an extreme I would see putting spare cash in to direct investments as opposed to paying back the mortgage as borrowing to gamble (extreme- I know).

My pension does not need any extra funds so I happily put any extra cash against the mortgage. It suits my current risk appetite and will help me achieve my goal of retiring early and funding the mini me through 3rd level.

I can see why others would do differently and no harm in that - but I am happy with my own strategy.

Eircom_Sucks

JimmyVik wrote: »

I dont buy into that he is the only one running that company at all.
What i like about them is that they are very transparent.
But I think ETFs are probably a better way to go once you have enough invested in shares to use up your yearly cgt allowance.

of course

[Deleted User]

This is an awfully funny thread. People get very defensive if anyone doesn't follow their instructions.

I can only speak for myself, but I have a retired neighbor, who used work with mortgages in one of the main Irish Banks. He drives a very nice car, retired at an early age, and has, what I would consider a very comfortable life.
He offered advice one evening, and I gladly listened to him.

Bear in mind, I started with a 30 year mortgage of approx €350,000. 4 years fixed rated at 2.6%

His advice, in simplistic terms was:
1. Max out your pension contributions if you can afford to
2. Have no more than 6 months of salary easily available - rainy day fund (Anyone more is not working for you)
3. If you can find an investment that has a return of greater than 5%, then invest in it
4. If you can't be sure of a greater than 5% return, then put that extra money into overpaying your mortgage

Avoid, in anyway possible paying interest only on your mortgage.

JimmyVik

Deleted User wrote: »

This is an awfully funny thread. People get very defensive if anyone doesn't follow their instructions.

I can only speak for myself, but I have a retired neighbor, who used work with mortgages in one of the main Irish Banks. He drives a very nice car, retired at an early age, and has, what I would consider a very comfortable life.
He offered advice one evening, and I gladly listened to him.

Bear in mind, I started with a 30 year mortgage of approx €350,000. 4 years fixed rated at 2.6%

His advice, in simplistic terms was:
1. Max out your pension contributions if you can afford to
2. Have no more than 6 months of salary easily available - rainy day fund (Anyone more is not working for you)
3. If you can find an investment that has a return of greater than 5%, then invest in it
4. If you can't be sure of a greater than 5% return, then put that extra money into overpaying your mortgage

Avoid, in anyway possible paying interest only on your mortgage.

Good advise i would say.