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Do you overpay your mortgage?

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  • Options
    #182
    Cyrus
    Registered Users Posts: 19,674 ✭✭✭✭Cyrus


    EmmetSpiceland wrote: »
    If it’s an “occupational” scheme then any money the employer puts in, on your behalf, has no effect on, your own, personal limits.

    If the company is paying you an additional amount intended for your own “arrangement” then that will be paid across, by you, into the pension and will be considered an “employee” contribution.

    No “employer” contribution affects your own, personal limits. How could they?

    We set up a company scheme 5 years ago, it's not an occupational scheme, we pay 5 percent in as an employer contribution, that 5 percent is counted against the employees tax free threshold .

    Cant make it any clearer than that.


  • Options
    #183
    Bass Reeves
    Registered Users Posts: 18,166 ✭✭✭✭Bass Reeves


    It amazing how some people cannot understand basic economics. But before we go there we will deal with the red herring regarding why banks do not invest in the stock market.

    It's really very simple they could not access the capital they access to lending for mortgages or other retail bank lending. When bank's lend you mortgage money they borrow it from the ECB at virtually zero% or below it. If they were an investment bank they could not access this money.

    So should you over pay your mortgage. You can if you have all other bases covered. In Ireland at present you will not be kicked out of your house even if you do not make payments. People who actually make payments or partial payments are virtually guaranteed never to be evicted.

    So what bases do you need covered. The first thing is that you will never need personal lending. Car loans and other personal loans such as for holidays and house improvement are lend at 6-7%. Credit cards are 8%+ minimum and can run into 12%+. As well the interest on CC is added monthly so it's APR can run to crazy numbers. A mistake can mean one loan can run into another and mean instead of paying a small premium for a large amount of money you pay stupidity large premiums for small amounts.

    You should be investing in a pension. I do not totally hold to maximizing it. But I would before overpaying a mortgage. If your employer is matching your contributions I would definitely maximize as not all employers may do this for you. There is another thing to realize about pension contributions the tax benefits in 5 years time may not be as beneficial as at present. As well compound interest on pensions mean an investment made at year one of 25 will outperform one at year 15 of 25.

    Next is the monster of college fees. Everybody thinks that you pay the mortgage and this ends borrowing. However college fees and accommodation will cost you minimum 50k per child over 4-5 years. For two children it's 100k over maybe 7-8 years. That before you allow for a year where a child has to repeat a year. Add another 20k. A master's for a child will add another 20-30k. That all assuming that the true cost of college fees are not imposed on people over the next 10-20 years adding another 25-30k/child over 4-5years.

    You will never save that money in a short timescale. While you may find 40-50% over the short term to medium term it's unlikely you can find all this. A college investment fund in the child's name will allow access to that money with either no income tax liability or at 20%. At an average of both the money will be accessed at a 10% tax rate.

    Then you have the rainy day fund. The rainy day fund is not for to prevent borrowing it's for when sh!t happen's or it can be used for a opportunity investment. You are probably looking at 6-9 month's wages.

    After all that you have active investment. These are opportunities that come to you. It may be share options or an opportunity to invest in an investment you have control over. It may be during an economic downturn. When these option come opportunity money can be worth 10-15%/year over 5-10 years. I wish I had opportunity money in 2012-2014.

    I see some here worry about an economic collapse that will rise interest rates substantially. Most people fix for 3 years minimum but 5year fixed are not overly expensive either. Stacking over payment money will deflect the risk of this as will access to a decent rainy day fund.

    Mortgage money has never been as cheap and personal lending has never been as expensive relative to mortgage borrowings. On top of that access to capital to ordinary people has not been as hard.

    Overpaying a mortgage would be way down my list of priorities.

    Slava Ukrainii



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    #184
    StupidLikeAFox
    Registered Users Posts: 7,698 ✭✭✭StupidLikeAFox


    Louis Friend wrote: »
    …And you’re implying that stock portfolios only go one way. Just because 1994 until now was a decent period it doesn’t mean that the next 27 years will be similar.

    But think about that for a minute - are you are saying that the market will stagnate for the next 27 years, or that it will grow and suffer a cataclysmic shock to bring you down to normal levels?

    If you want to invest over 5 years then the market could potentially suffer a shock and wipe out all your gains in the last year, but over 27 or 30 years it will recover, and with inflation and compounding it will only go one way. Of course something like a nuclear war could happen and wipe out decades of growth, but in that scenario you will have bigger things to worry about


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    #185
    JimmyVik
    Registered Users Posts: 5,368 ✭✭✭JimmyVik


    dotsman wrote: »
    But, I don't think you understand the meaning either. We need to be clear here. YOU ARE NOT GURANTEED a finite/quantifiable amount when overpaying your mortgage.

    The amount will vary due to changes in interest rates over the course of the loan. The exact same way the returns from the stock market will vary over time (and be more volatile). However, over the long-term (which is what we are dealing with here), the average stock market return will be several multiples of the return from mortgage over-repayments.



    I'm not sure what investments you are thinking of that involves "losing the lot". When talking about investing, we are talking about maintaining a balanced/diversified stock portfolio or buying into several ETFs such as S&P 500 etc. If a portfolio such as this loses money over the course of many years, then you have much bigger problems than a mortgage (we are talking major economic collapse of western economy that would make the 08' Financial collapse look like a minor blip). The only way to "lose the lot would" be a "complete end of all life on earth" scenario.


    In either case, we are paying off the mortgage. What we are talking about is the potential returns from the excess money after the standard monthly repayment has been made. We can use that excess to "overpay" the mortgage and aim to save a small amount of money over the life of the loan, or we can invest that excess and make a vastly larger sum of money in that time period.



    I'm not quite sure what you are saying here.

    CGT is 33% on all profit over €1,270 per annum. Your ~10% returns on the stock market, even after tax, still greatly outweigh the minuscule returns from mortgage overpayments.


    Double that to €2540 for a couple. But you have to have the investment split into both your accounts. We sell enough to take advantage of that every year and go on a holiday with it :)


  • Options
    #186
    JimmyVik
    Registered Users Posts: 5,368 ✭✭✭JimmyVik


    KevinK wrote: »
    I don't see any on there now - have looked for Scottish Mortgages and a few others


    Go for Berkshire Hathaway and let Warren Buffet look after the ins and outs for you.
    Sell enough every year then to use up your €2500 allowance.
    After that you pay 33% on any profit you realize.


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    #187
    Bass Reeves
    Registered Users Posts: 18,166 ✭✭✭✭Bass Reeves


    JimmyVik wrote: »
    Double that to €2540 for a couple. But you have to have the investment split into both your accounts. We sell enough to take advantage of that every year and go on a holiday with it :)

    Or put the one account in joint names

    Slava Ukrainii



  • Options
    #188
    JimmyVik
    Registered Users Posts: 5,368 ✭✭✭JimmyVik


    Bass Reeves wrote: »
    Or put the one account in joint names


    I dont think thats allowed when it comes to CGT, even if you are married.
    The allowance is only per person and not per couple.


  • Options
    #189
    JimmyVik
    Registered Users Posts: 5,368 ✭✭✭JimmyVik


    Bass Reeves wrote: »
    It amazing how some people cannot understand basic economics. But before we go there we will deal with the red herring regarding why banks do not invest in the stock market.

    It's really very simple they could not access the capital they access to lending for mortgages or other retail bank lending. When bank's lend you mortgage money they borrow it from the ECB at virtually zero% or below it. If they were an investment bank they could not access this money.

    So should you over pay your mortgage. You can if you have all other bases covered. In Ireland at present you will not be kicked out of your house even if you do not make payments. People who actually make payments or partial payments are virtually guaranteed never to be evicted.

    So what bases do you need covered. The first thing is that you will never need personal lending. Car loans and other personal loans such as for holidays and house improvement are lend at 6-7%. Credit cards are 8%+ minimum and can run into 12%+. As well the interest on CC is added monthly so it's APR can run to crazy numbers. A mistake can mean one loan can run into another and mean instead of paying a small premium for a large amount of money you pay stupidity large premiums for small amounts.

    You should be investing in a pension. I do not totally hold to maximizing it. But I would before overpaying a mortgage. If your employer is matching your contributions I would definitely maximize as not all employers may do this for you. There is another thing to realize about pension contributions the tax benefits in 5 years time may not be as beneficial as at present. As well compound interest on pensions mean an investment made at year one of 25 will outperform one at year 15 of 25.

    Next is the monster of college fees. Everybody thinks that you pay the mortgage and this ends borrowing. However college fees and accommodation will cost you minimum 50k per child over 4-5 years. For two children it's 100k over maybe 7-8 years. That before you allow for a year where a child has to repeat a year. Add another 20k. A master's for a child will add another 20-30k. That all assuming that the true cost of college fees are not imposed on people over the next 10-20 years adding another 25-30k/child over 4-5years.

    You will never save that money in a short timescale. While you may find 40-50% over the short term to medium term it's unlikely you can find all this. A college investment fund in the child's name will allow access to that money with either no income tax liability or at 20%. At an average of both the money will be accessed at a 10% tax rate.

    Then you have the rainy day fund. The rainy day fund is not for to prevent borrowing it's for when sh!t happen's or it can be used for a opportunity investment. You are probably looking at 6-9 month's wages.

    After all that you have active investment. These are opportunities that come to you. It may be share options or an opportunity to invest in an investment you have control over. It may be during an economic downturn. When these option come opportunity money can be worth 10-15%/year over 5-10 years. I wish I had opportunity money in 2012-2014.

    I see some here worry about an economic collapse that will rise interest rates substantially. Most people fix for 3 years minimum but 5year fixed are not overly expensive either. Stacking over payment money will deflect the risk of this as will access to a decent rainy day fund.

    Mortgage money has never been as cheap and personal lending has never been as expensive relative to mortgage borrowings. On top of that access to capital to ordinary people has not been as hard.

    Overpaying a mortgage would be way down my list of priorities.


    Excellent post.


    When my first sprog was born 12 years ago her grandfather bought her 1 apple share, 1 amazon share, 1 Oracle share and 1 microsoft share. We thought he was mad and would have preferred the cash, but he wanted to do this.

    On her birthday every year since he has added one of each for her.
    He also did it for her brother who came along 1.5 years later.
    I havent checked recently, but between the two children now they could buy a house, never mind pay for university when the time comes.
    Funny how things work out.


  • Options
    #190
    Bass Reeves
    Registered Users Posts: 18,166 ✭✭✭✭Bass Reeves


    JimmyVik wrote: »
    I dont think thats allowed when it comes to CGT, even if you are married.
    The allowance is only per person and not per couple.

    As long as the account is in joint names it's ok. Each person is taking half the profits from the account. My accountant advised me on it

    Slava Ukrainii



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    #191
    cruizer101
    Registered Users Posts: 3,205 ✭✭✭cruizer101


    StupidLikeAFox wrote: »
    Tell me if I have my maths correct here.

    I went to AIB mortgage calculator and calculated that if you have a mortgage worth 200,000e, with 30 years left at 3%, and overpayed by 200e per month, by the end of the mortgage you have saved e30,815.30

    Then I used an s&p calculator with a conservative 6% rate of return (the average is 8%) that came back with this: Investing an initial amount of e0.00 with regular contributions of e200.00 per month could be worth e195,851.18 after 30 years if the annual rate of return was 6.00%.

    Even if the rate is 3% for the investment, the return over 30 years is e116,028.02 because of compounding. Even after tax you should be way up?

    Your maths is a bit wrong.
    In your final investment amount you are not accounting for the money you invest each month making up part of that amount.
    In mortgage overpayment that amount goes off the principal which has to be paid off.
    There is still potential for making more investing but you need to compare the correct figures.


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    #192
    Wanderer78
    Registered Users Posts: 28,805 ✭✭✭✭Wanderer78


    Bass Reeves wrote: »
    When bank's lend you mortgage money they borrow it from the ECB at virtually zero% or below it.

    when banks lend you money, they simply create it from thin air, this process is commonly called 'double entry book-keeping', as it effectively is an accountancy activity. two accounts are created, the bank gives you access to one account, and credits it, the other side of the balance sheet is the return of this payment, your payments. when the full amount is paid, both accounts are closed. in order for this transaction to take place, both creditor and debtor must meet their mutual criteria


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    #193
    JimmyVik
    Registered Users Posts: 5,368 ✭✭✭JimmyVik


    Bass Reeves wrote: »
    As long as the account is in joint names it's ok. Each person is taking half the profits from the account. My accountant advised me on it


    Mine advised me the opposite :)
    My wife.


  • Options
    #194
    Blackjack
    Registered Users Posts: 3,592 ✭✭✭Blackjack


    barney shamrock wrote: »
    Once the bickering starts in an otherwise interesting thread, I lose interest very quickly.

    I can usually ignore the bickering but when the crazies arrive it's time to start adding people to the ignore list.


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    #195
    Cyrus
    Registered Users Posts: 19,674 ✭✭✭✭Cyrus


    JimmyVik wrote: »
    Go for Berkshire Hathaway and let Warren Buffet look after the ins and outs for you.
    Sell enough every year then to use up your €2500 allowance.
    After that you pay 33% on any profit you realize.

    problem with BH (and i hold) is that WB is an old man, if he dies suddenly your shares will plummet (in the short term at least)


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    #196
    Cyrus
    Registered Users Posts: 19,674 ✭✭✭✭Cyrus


    Wanderer78 wrote: »
    when banks lend you money, they simply create it from thin air, this process is commonly called 'double entry book-keeping', as it effectively is an accountancy activity.

    im not sure where to start with this. :pac:


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    #197
    Blackjack
    Registered Users Posts: 3,592 ✭✭✭Blackjack


    Cyrus wrote: »
    im not sure where to start with this. :pac:

    recommendation here.


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    #198
    JustAThought
    Registered Users Posts: 5,323 ✭✭✭JustAThought


    Agree that the thread has been totally hijacked. :(

    I overpay my mortgage by about 5 or 6%. I used overpay significantly but then I lost my job overnight, had to burn through my savings to keep the mortgage & basic living costs/car loan paid and deeply regretted the huge overpayments I’d been making when my emergency savings fund was emptied ( by the mortgage) and I found myself in deep ****.

    Nobody here has mentioned changing circumstances - unemployment, cancer, a serious diagnosis, a child being seriously ill so you have to give up your job - something that stops you getting back into work and that you cannot workaround. For that you need savings - and not ‘just’ a few thousand.

    Unlike the great many whose rent / rentallowance/ HAP is paid for by others, people with mortgages get NO social welfare help towards the mortgage. And the house is only yours to use so long as you keep up repayments - your past track record of overpaying will get you a rosy glow but will cut no mustard when they suddenly send you the reposession letter after a year or maybe two saying you owe them 150,000 or 200,000 and unless you pay this by next friday they will start court proceedings to reposses the house. That’s how quickly it happens. Even of you have been paying and have paid 250,000 and have ‘only’ 8 years left to go. It’s the banks opportunity to claim their orize and have their cake and eat it.
    Of course the social welfare will pay a rent for you after the home is taken but not a penny before - ‘they do not pay mortgages’ - someone elses under HAP - yes - but not yours no matter how long you have lived here or how pitiful your story or how many decades you paid the mortgage for while paying PAYE taxes @42%.

    In 2005 or so I got a lump sum of about 40,000 and decided to put it into a pension - roll on a few years mid recession and I got the letter saying the portfolio was now worth 3,000 aprox. Spreadsheet on bankrupt companies, money non-recoverable, risk in the portfolio of 50% and global economy crash etc. Big 5 management - not some sleezy geezer working from a bedsit/homeoffice. The pension was gone, still pitifully improving, and all the money lost. I’d have had more satisfaction putting it on a horse. NO investment is ‘guaranteed’ anymore - unless its a prize bonds or Post Office certificate - read the little print. And I doubt many brokers predicted a global pandemic, the collapse of entire industries and millions of businesses going bust globally.

    People here are talking about paying the mortgage til when they retire . Many private companies set their retirement age at 65. Our overlords have now said they will NOT start paying pensions (other than their own) until people hit 67. IF someone has large savings in a bank they will NOT qualify to get any SW payment - dole or the bridging waiting for state pension payment - they will have to use their lifelong savings to exist until the state pension kicks in - two years - at minumum you will be spending your 25,000 or 40,000 hard saved nest egg existing and paying bills /remaining mortgage/ house extension debt/car loans /pension holiday / childrens college etc. Welcome to hard work. If you have debt - however small - a few humdred a month - they will pay you some advance benefit. In the two years this will be about 12,000 per annum so say 24,000. For NOT having saved it. Go figure.

    If you have income & debt ( mortgage) and your 3 similar aged kids want to go to college within the same 5 or 7 year span (eg) the debt will be factored in against your income to calculate your threshold to enable them to get a grant and you NOT to have to pay the 3k each ‘capitation’ or otherwise fees.. They will possibly also get their medical bills taken care of. A significant ‘saving’.

    It boils my blood that people who work hard and oay their way have to do just that - keep paying and scrimping and making do - while those that sit back, live in someone elses home at the courtesy of the taxpayer and don’t push themselves or work are given handouts and help amounting to thousands every month every inch of their lives - while here hardworking people desperately try and figure out how to juggle all the plates while working long hours and trying to make good decisions, pay their way and do the right thing.


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    #199
    Wanderer78
    Registered Users Posts: 28,805 ✭✭✭✭Wanderer78


    Cyrus wrote: »
    im not sure where to start with this. :pac:

    plenty of research backing those statements, from the world of academia, none academia and even some central bank research to boot


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    #200
    BraveDonut
    Registered Users Posts: 1,020 ✭✭✭BraveDonut


    Paul_Mc1988 wrote: »
    But in the end you have less money and give money to a bank for no reason.

    At the rate of my tracker, it is very little


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    #201
    Cyrus
    Registered Users Posts: 19,674 ✭✭✭✭Cyrus


    Wanderer78 wrote: »
    plenty of research backing those statements, from the world of academia, none academia and even some central bank research to boot

    maybe start with an accountant because what you posted was utter tosh.


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    #202
    JimmyVik
    Registered Users Posts: 5,368 ✭✭✭JimmyVik


    Cyrus wrote: »
    problem with BH (and i hold) is that WB is an old man, if he dies suddenly your shares will plummet (in the short term at least)


    I think people are prepared for him dying.
    Even he is :)
    They might plummet for a few days as people who dont understand there will be a succession plan will sell off. I would buy if that happened tbh.


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    #203
    Wanderer78
    Registered Users Posts: 28,805 ✭✭✭✭Wanderer78


    Cyrus wrote: »
    maybe start with an accountant because what you posted was utter tosh.

    so all those respected commentators, again, some academics, others not, and the institutions that back those statements, i.e central banks, are wrong, yea? baring in mind, some of those commentators actually realised 08 was in the post prior to it, due to these facts, you know, those that were recommended to commit suicide for spreading alarmist information about the oncoming crash!


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    #204
    Cyrus
    Registered Users Posts: 19,674 ✭✭✭✭Cyrus


    Wanderer78 wrote: »
    so all those respected commentators, again, some academics, others not, and the institutions that back those statements, i.e central banks, are wrong, yea? baring in mind, some of those commentators actually realised 08 was in the post prior to it, due to these facts, you know, those that were recommended to commit suicide for spreading alarmist information about the oncoming crash!

    i have no idea, but your post and reference to 'double entry accounting' is utter nonsense, so you clearly don't understand it.


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    #205
    Wanderer78
    Registered Users Posts: 28,805 ✭✭✭✭Wanderer78


    Cyrus wrote: »
    i have no idea, but your post and reference to 'double entry accounting' is utter nonsense, so you clearly don't understand it.

    so you are disagreeing with those respected commentators and those institutions ,no offence, but im gonna stick with their research, but im willing to listen to your version of events?


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    #206
    Cyrus
    Registered Users Posts: 19,674 ✭✭✭✭Cyrus


    Wanderer78 wrote: »
    so you are disagreeing with those respected commentators and those institutions ,no offence, but im gonna stick with their research, but im willing to listen to your version of events?

    i am saying what you wrote is nonsense
    when banks lend you money, they simply create it from thin air, this process is commonly called 'double entry book-keeping'

    whatever you mean by the above it isnt what you think it is.


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    #207
    Wanderer78
    Registered Users Posts: 28,805 ✭✭✭✭Wanderer78


    Cyrus wrote: »
    i am saying what you wrote is nonsense



    whatever you mean by the above it isnt what you think it is.

    im sorry, but im going to stick my sources, this is exactly the way they explain it, even though im sure the process is a lot more complicated than just this, again, this is exactly how they explain it, again, baring in mind, some of my sources realised 08 was in the post, knowing this from their knowledge and data analysis. again, im willing to listen to your version of money creation?


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    #208
    Cyrus
    Registered Users Posts: 19,674 ✭✭✭✭Cyrus


    Wanderer78 wrote: »
    im sorry, but im going to stick my sources, this is exactly the way they explain it, even though im sure the process is a lot more complicated than just this, again, this is exactly how they explain it, again, baring in mind, some of my sources realised 08 was in the post, knowing this from their knowledge and data analysis. again, im willing to listen to your version of money creation?

    I want to lend you money, you want to borrow from me.

    I would Credit my assets (being a decrease in my cash of the amount that i am going to advance to you) and Debit a receivable being the loan due to me from you.

    You would Debit your assets (being the inflow of cash received from me) and credit your liabilities being the loan that you now owe.

    That is double entry accounting.


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    #209
    PokeHerKing
    Registered Users Posts: 4,226 ✭✭✭PokeHerKing


    Cyrus wrote: »
    i am saying what you wrote is nonsense



    whatever you mean by the above it isnt what you think it is.

    Hes basically saying the banks write an IOUs and you as the mortgage taker are the actual creator of the money by repaying the debt. Not some magic ECB money tree.


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    #210
    Wanderer78
    Registered Users Posts: 28,805 ✭✭✭✭Wanderer78


    Cyrus wrote: »
    I want to lend you money, you want to borrow from me.

    I would Credit my assets (being a decrease in my cash of the amount that i am going to advance to you) and Debit a receivable being the loan due to me from you.

    You would Debit your assets (being the inflow of cash received from me) and credit your liabilities being the loan that you now owe.

    That is double entry accounting.

    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......

    im gonna stick with this explanation, banks are not 'intermediaries', as the text books say, they simply create the credit on their books, they are not just moving money from one place to another, credit creation is the primarily function of banks, one side is the asset, the other is the liability, the loan


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    #211
    [Deleted User]
    Posts: 14,344 ✭✭✭✭ [Deleted User]


    JustAThought wrote: »
    It boils my blood


    Fantastic post, and a very honest overview of the sad reality of trying to make something of yourself in Ireland.


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