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Do you overpay your mortgage?

1246

Comments

  • #152
    lawred2
    Registered Users, Registered Users 2 Posts: 24,460 ✭✭✭✭lawred2


    A Tyrant Named Miltiades! wrote: »
    Er, no it isn't.

    If you're 45 years of age on a salary of 70k, with no pension, you pay about €17.5k per annum in tax.

    If you put €12k into a pension instead, you'll pay €12.8k in tax. Lets say your employer matches that with €5k, maxing out your pension limit – now you have 17k per annum in a pension, and you're paying less tax than the guy paying down his mortgage.

    It's true that you might lose that money in a freak crash, but about 5k of it was going to the taxman anyway. You were never getting that back. It's as if you are putting about 7k into a pension fund worth 17k.

    And at those rates, you're not paying any BIk on your employer's contribution.

    Even if your employer isn't making any contribution, and your pension contributions are personal, you're reducing your taxable income significantly, ie investing money you would never otherwise have laid eyes on.

    I thought employer contributions didn't count towards the pension limit?


  • #153
    Louis Friend
    Banned (with Prison Access) Posts: 590 ✭✭✭Louis Friend


    A Tyrant Named Miltiades! wrote: »
    Er, no it isn't.

    If you're 45 years of age on a salary of 70k, with no pension, you pay about €17.5k per annum in tax.

    If you put €12k into a pension instead, you'll pay €12.8k in tax. Lets say your employer matches that with €5k, maxing out your pension limit – now you have 17k per annum in a pension, and you're paying less tax than the guy paying down his mortgage.

    It's true that you might lose that money in a freak crash, but about 5k of it was going to the taxman anyway. You were never getting that back. It's as if you are putting about 7k into a pension fund worth 17k.

    And at those rates, you're not paying any BIk on your employer's contribution.

    Even if your employer isn't making any contribution, and your pension contributions are personal, you're reducing your taxable income significantly, ie investing money you would never otherwise have laid eyes on.

    See those words “personally held investment account” in my post?

    And where I talk about prioritising pension investing over mortgage overpayments and personal investing?

    There are clues in the terminology.


  • #154
    [Deleted User]
    Posts: 13,712 ✭✭✭✭ [Deleted User]


    lawred2 wrote: »
    I thought employer contributions didn't count towards the pension limit?

    They do when it comes to BIK, depends on pension type.


  • #155
    lawred2
    Registered Users, Registered Users 2 Posts: 24,460 ✭✭✭✭lawred2


    A Tyrant Named Miltiades! wrote: »
    They do when it comes to BIK, depends on pension type.

    Not on occupational as far I was advised

    Going to check again tomorrow at work to be sure.


  • #156
    Louis Friend
    Banned (with Prison Access) Posts: 590 ✭✭✭Louis Friend


    lawred2 wrote: »
    Not on occupational as far I was advised

    Going to check again tomorrow at work to be sure.

    No need to check. It’s fine for an occupational pension.

    It’s a PRSA that gives rise to BIK on an employer contribution, with the contribution then deemed to eat into the personal age-related allowances.


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  • #157
    dotsman
    Registered Users, Registered Users 2 Posts: 3,636 ✭✭✭dotsman


    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%.

    Wow, talk about "playing" with figures.

    Firstly, mortgage interest rates are below 3%. With Avant etc, many people are on <2% and with trackers, many people are on < 1%.
    Secondly, with CGT @ 33% and the first €1,270 of profits tax free each year.
    Thus, a much more realistic comparison would be that the investment returns need to average ~4% per annum to beat overpaying a mortgage.

    Typical stock market returns average ~10%
    Louis Friend wrote: »
    Plus it costs money to invest in terms of management fees and transaction charges.
    With Degiro etc, the fees amount to a few euro per annum and are, thus, negligible.
    Louis Friend wrote: »
    And returns aren’t guaranteed; there is the potential to lose money.
    As has been stated many times, that is why one looks at the average returns, which are ~10%. When investing, one does not care about how much it went up or down in a given day/month/year. All that matters in the overall return over the investment period. Here we are talking many years -> decades, which sees the overall returns align to the "average".

    Likewise, as stated before, there is no guarantee on the returns from the mortgage overpayments. The returns will fluctuate with interest rate changes.
    Louis Friend wrote: »
    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.
    As per above, there is no guarantee with Door A, and the percentage is much closer to ~4%. Door B, over a long period of time offers ~10%. With the power of compound interest, with Door B, you will end up with many multiples of the money offered from Door A. Given the size of the money we are talking about, for the average person, this will likely be hundreds of thousands of euro.

    Door A is the wrong choice, by far.
    Louis Friend wrote: »
    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
    Even this doesn't make sense/ There are no limits on the mortgage overpayments. If you are "maximising" them, then there is no spare cash for 4).


  • #158
    dotsman
    Registered Users, Registered Users 2 Posts: 3,636 ✭✭✭dotsman


    2lazytogetup wrote: »
    Reckon there is a bull market, when interest rates rise, I can see etf values dropping cira 10%. Go with overpaying mortgage

    If that is your understanding, then you probably are better of overpaying your mortgage! Or, better yet, I would advise you to get a responsible adult to manage your money for you ;)

    SPDR S&P 500 (one of the more popular ETFs) Historic Performance


  • #159
    lawred2
    Registered Users, Registered Users 2 Posts: 24,460 ✭✭✭✭lawred2


    dotsman wrote: »
    Wow, talk about "playing" with figures.

    Firstly, mortgage interest rates are below 3%. With Avant etc, many people are on <2% and with trackers, many people are on < 1%.
    Secondly, with CGT @ 33% and the first €1,270 of profits tax free each year.
    Thus, a much more realistic comparison would be that the investment returns need to average ~4% per annum to beat overpaying a mortgage.

    Typical stock market returns average ~10%

    With Degiro etc, the fees amount to a few euro per annum and are, thus, negligible.


    As has been stated many times, that is why one looks at the average returns, which are ~10%. When investing, one does not care about how much it went up or down in a given day/month/year. All that matters in the overall return over the investment period. Here we are talking many years -> decades, which sees the overall returns align to the "average".

    Likewise, as stated before, there is no guarantee on the returns from the mortgage overpayments. The returns will fluctuate with interest rate changes.


    As per above, there is no guarantee with Door A, and the percentage is much closer to ~4%. Door B, over a long period of time offers ~10%. With the power of compound interest, with Door B, you will end up with many multiples of the money offered from Door A. Given the size of the money we are talking about, for the average person, this will likely be hundreds of thousands of euro.

    Door A is the wrong choice, by far.


    Even this doesn't make sense/ There are no limits on the mortgage overpayments. If you are "maximising" them, then there is no spare cash for 4).

    yes there can be

    if you are on a fixed rate - then there may be no allowed overpayments... UB allow 10% overpayments on a fixed rate. But not all banks do.


  • #160
    dotsman
    Registered Users, Registered Users 2 Posts: 3,636 ✭✭✭dotsman


    lawred2 wrote: »
    yes there can be

    if you are on a fixed rate - then there may be no allowed overpayments... UB allow 10% overpayments on a fixed rate. But not all banks do.

    But then, you would just overpay as a lump sum at the end of the fixed period.


  • #161
    Louis Friend
    Banned (with Prison Access) Posts: 590 ✭✭✭Louis Friend


    dotsman wrote: »
    Wow, talk about "playing" with figures.

    Firstly, mortgage interest rates are below 3%. With Avant etc, many people are on <2% and with trackers, many people are on < 1%.
    Secondly, with CGT @ 33% and the first €1,270 of profits tax free each year.
    Thus, a much more realistic comparison would be that the investment returns need to average ~4% per annum to beat overpaying a mortgage.

    Typical stock market returns average ~10%

    With Degiro etc, the fees amount to a few euro per annum and are, thus, negligible.


    As has been stated many times, that is why one looks at the average returns, which are ~10%. When investing, one does not care about how much it went up or down in a given day/month/year. All that matters in the overall return over the investment period. Here we are talking many years -> decades, which sees the overall returns align to the "average".

    Likewise, as stated before, there is no guarantee on the returns from the mortgage overpayments. The returns will fluctuate with interest rate changes.


    As per above, there is no guarantee with Door A, and the percentage is much closer to ~4%. Door B, over a long period of time offers ~10%. With the power of compound interest, with Door B, you will end up with many multiples of the money offered from Door A. Given the size of the money we are talking about, for the average person, this will likely be hundreds of thousands of euro.

    Door A is the wrong choice, by far.


    Even this doesn't make sense/ There are no limits on the mortgage overpayments. If you are "maximising" them, then there is no spare cash for 4).

    You literally have no idea what you’re talking about.

    https://www.google.ie/amp/s/www.irishtimes.com/business/economy/irish-mortgage-rates-remain-stubbornly-high-new-figures-show-1.4531009%3fmode=amp

    The average variable rate for a new mortgage is currently 3.41%. The average fixed rate is 2.65%. The average blended rate is 2.78%.

    Avant only allow overpayments of 1%, their maximum LTV for the 1.95% rate is 60%, they’ll only lend to people in cities, and they do crazy stuff at underwriting like treating your credit card limit as credit card debt.

    Average returns are NOT 10%, you’re just making that up.

    And as for your CGT point, again it’s at best misguided. Investment returns come in a number of forms, capital gains, dividends, etc. Platforms like De Giro don’t allow people to buy US ETFs because they don’t comply with EU rules around documentation. So investors can’t access diversified ETFs unless they’re in the EU, in which case they’re taxed as funds at 41% with no scope to use the €1,270 annual exemption. So the investor can always buy single stocks and blow themselves up as stockpickers tend to do.

    Equally, you seem blissfully unaware of the restrictions around overpayments for people on fixed rates; 1% with AvantCard as outlined above. 10% with Ulster Bank who I’m with. Hence, my steps as my income rose were to save €50k in cash first, then to lob €23k a year into my pension, then to repay 10% of the mortgage each year, and only then to invest any surplus in my own name.

    As I said at the outset, you have no idea what you’re talking about.


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  • #162
    2lazytogetup
    Registered Users Posts: 844 ✭✭✭2lazytogetup


    A Tyrant Named Miltiades! wrote: »
    Well that's a bit like asking your local newsagent why he doesn't simply become a major retailer, and take on the big boys.

    It's true that profit margins are tighter in retail banks, but they have high volumes, and this is where their skills lie. They also generate income from banking fees, personal/business lending, and other lines of credit. It's a type of banking that requires low levels of skill to manage risk — much of the work is done for them the likes of the ECB.

    Having said that, it's no surprise that we do, indeed, have more investment banks operating here than retail banks. Retail banks have been deserting the Irish mortgage market precisely because of low returns, and (perhaps more specifically) a risk of deteriorating returns, because of their almost unique exposure to non performing mortgages. That's a whole other debate.

    But the short answer is, they have built their reputation — or what is left of one— in retail banking. It would be a bizarre and mammoth operation to leave that behind and morph into an investment bank. Better to be a big fish in a small pond than a minnow who tries to run with the sharks, to absolutely stretch an analogy!

    No don't mean a retail bank become an investment bank. If investments are guaranteed 10 percent. Why would a mortgage provider give you money at 3 per cent when they can go to a investment bank as a customer and get a "guaranteed" 10 percent


  • #163
    2lazytogetup
    Registered Users Posts: 844 ✭✭✭2lazytogetup


    A Tyrant Named Miltiades! wrote: »
    Well that's a bit like asking your local newsagent why he doesn't simply become a major retailer, and take on the big boys.

    It's true that profit margins are tighter in retail banks, but they have high volumes, and this is where their skills lie. They also generate income from banking fees, personal/business lending, and other lines of credit. It's a type of banking that requires low levels of skill to manage risk — much of the work is done for them the likes of the ECB.

    Having said that, it's no surprise that we do, indeed, have more investment banks operating here than retail banks. Retail banks have been deserting the Irish mortgage market precisely because of low returns, and (perhaps more specifically) a risk of deteriorating returns, because of their almost unique exposure to non performing mortgages. That's a whole other debate.

    But the short answer is, they have built their reputation — or what is left of one— in retail banking. It would be a bizarre and mammoth operation to leave that behind and morph into an investment bank. Better to be a big fish in a small pond than a minnow who tries to run with the sharks, to absolutely stretch an analogy!

    To use you example, why would a local newsagent sell me a paper for 2 euro when a large institution will buy them for 3 euro


  • #164
    2lazytogetup
    Registered Users Posts: 844 ✭✭✭2lazytogetup


    dotsman wrote: »
    If that is your understanding, then you probably are better of overpaying your mortgage! Or, better yet, I would advise you to get a responsible adult to manage your money for you ;)

    SPDR S&P 500 (one of the more popular ETFs) Historic Performance

    You sound like a taxi driver in 2005 patronisingly saying I should be buying gaffs in Bulgaria and releasing equity from my house. It was that ignorance that has the country where it is


  • #165
    The J Stands for Jay
    Registered Users, Registered Users 2 Posts: 5,807 ✭✭✭The J Stands for Jay


    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

    You need to run your numbers again.

    To overpay a mortgage by €1,000 you need to earn €2,222 gross. Taking my mortgage rate of 2.6%, you'll have made €26 in a year.

    For an investment, assuming a return of 8% (well below the average of 10% to allow for any charges) gives a profit of €80. After CGT, that becomes €54, well ahead of the overpayment return. We can assume an investment in Berkshire Hathaway, so no dividends are paid, and no ETF issues.

    For a pension investment, €2,222 gross gives an initial investment of €1,978. Add on 8% growth and you're at €2,136.

    The mortgage overpayment is not looking like a great investment.


  • #166
    The J Stands for Jay
    Registered Users, Registered Users 2 Posts: 5,807 ✭✭✭The J Stands for Jay


    lawred2 wrote: »
    I thought employer contributions didn't count towards the pension limit?

    They only count on a PRSA.


  • #167
    Louis Friend
    Banned (with Prison Access) Posts: 590 ✭✭✭Louis Friend


    McGaggs wrote: »
    You need to run your numbers again.

    To overpay a mortgage by €1,000 you need to earn €2,222 gross. Taking my mortgage rate of 2.6%, you'll have made €26 in a year.

    For an investment, assuming a return of 8% (well below the average of 10% to allow for any charges) gives a profit of €80. After CGT, that becomes €54, well ahead of the overpayment return. We can assume an investment in Berkshire Hathaway, so no dividends are paid, and no ETF issues.

    For a pension investment, €2,222 gross gives an initial investment of €1,978. Add on 8% growth and you're at €2,136.

    The mortgage overpayment is not looking like a great investment.

    See the way pension investment is ahead of mortgage overpayment in my post?

    And I’d love to see that average return of 10% a year…

    And you’ve almost hit on the nub of the argument…one typically has to earn over €2,000 to make a €1,000 mortgage repayment.

    So avoiding 3% interest is like a >6% return.


  • #168
    The J Stands for Jay
    Registered Users, Registered Users 2 Posts: 5,807 ✭✭✭The J Stands for Jay


    Louis Friend wrote: »
    See the way pension investment is ahead of mortgage overpayment in my post?

    And I’d love to see that average return of 10% a year…

    And you’ve almost hit on the nub of the argument…one typically has to earn over €2,000 to make a €1,000 mortgage repayment.

    So avoiding 3% interest is like a >6% return.

    https://www.nerdwallet.com/article/investing/average-stock-market-return


  • #169
    Louis Friend
    Banned (with Prison Access) Posts: 590 ✭✭✭Louis Friend


    McGaggs wrote: »
    https://www.nerdwallet.com/article/investing/average-stock-market-return

    That’s the S&P and we don’t live in the US.

    Plus there have been prolonged periods where it wasn’t that.


  • #170
    Eircom_Sucks
    Registered Users, Registered Users 2 Posts: 3,193 ✭✭✭Eircom_Sucks


    Borrowed €305k on my own in May 2007 , had €60k savings at the time , house was 345k plus 16k stamp

    €975 a month on a tracker

    21 years left and im 40


  • #171
    The J Stands for Jay
    Registered Users, Registered Users 2 Posts: 5,807 ✭✭✭The J Stands for Jay


    Louis Friend wrote: »
    That’s the S&P and we don’t live in the US.

    Plus there have been prolonged periods where it wasn’t that.

    What has where you live got to do with your investments? That's the kind of logic that leads to 100% of your pension fund being in Irish equities, overweight on banks, and wondering why your returns are poor.


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  • #172
    Louis Friend
    Banned (with Prison Access) Posts: 590 ✭✭✭Louis Friend


    McGaggs wrote: »
    What has where you live got to do with your investments? That's the kind of logic that leads to 100% of your pension fund being in Irish equities, overweight on banks, and wondering why your returns are poor.

    Are those returns in USD or EUR?

    I think my investments are fine, thanks.


  • #173
    [Deleted User]
    Posts: 13,712 ✭✭✭✭ [Deleted User]


    2lazytogetup wrote: »
    To use you example, why would a local newsagent sell me a paper for 2 euro when a large institution will buy them for 3 euro
    No, it's more like why are they selling newspapers when they could sell vintage wines?
    Because they don't have the expertise or the client base for that activity on the same scale as their retail operations. Their clients want newspapers — well, lets switch back to banking – clients want mortgages and retail-banking services – and importantly, owners are confident to hold, or buy, shares as long as the company does what it's good at.

    Those owners include the Government of Ireland. The other owners are a relatively small number of shareholders – 200 shareholders own 90% of BoI. They're not going to keep their money in a bank that drops its main source of income.

    Irish retail banks get involved in corporate and investment activities to an extent they can, for example they own a lot of Irish Government debt, hold derivatives to protect themselves from interest and exchange rate fluctuations, and they do a certain amount of other investment activity for semi-state companies like the ESB or maybe RTE. But just don't have a competitive advantage, so they don't have major investor clients.

    They're doing quite well with what they know. Bank of Ireland last reported pre-tax profits of €700-odd million euro. When you consider that Britain's biggest retail bank (Lloyds) has pre-tax profits of about £1bn, it's impressive in a world where retail banking is coming under greater and greater stress.


  • #174
    EmmetSpiceland
    Registered Users, Registered Users 2 Posts: 11,024 ✭✭✭✭EmmetSpiceland


    lawred2 wrote: »
    I thought employer contributions didn't count towards the pension limit?

    They don’t.
    McGaggs wrote: »
    They only count on a PRSA.

    A PRSA is a personal arrangement so whatever goes into it is deemed to be an “employee” contribution.

    “It is not blood that makes you Irish but a willingness to be part of the Irish nation” - Thomas Davis



  • #175
    Cyrus
    Registered Users, Registered Users 2 Posts: 20,211 ✭✭✭✭Cyrus


    EmmetSpiceland wrote: »
    They don’t.



    A PRSA is a personal arrangement so whatever goes into it is deemed to be an “employee” contribution.

    There are plenty of smaller company pensions set up as prsa rather than occupational schemes. In that case employers contributions do count towards your threshold.


  • #176
    Cyrus
    Registered Users, Registered Users 2 Posts: 20,211 ✭✭✭✭Cyrus


    McGaggs wrote: »
    You need to run your numbers again.

    To overpay a mortgage by €1,000 you need to earn €2,222 gross. Taking my mortgage rate of 2.6%, you'll have made €26 in a year.

    For an investment, assuming a return of 8% (well below the average of 10% to allow for any charges) gives a profit of €80. After CGT, that becomes €54, well ahead of the overpayment return. We can assume an investment in Berkshire Hathaway, so no dividends are paid, and no ETF issues.

    For a pension investment, €2,222 gross gives an initial investment of €1,978. Add on 8% growth and you're at €2,136.

    The mortgage overpayment is not looking like a great investment.

    The moral of the story investing in your pension up to your max threshold is the most lucrative thing to do but being mortgage free in your 40s is appealing from a lifestyle perspective.


  • #177
    dotsman
    Registered Users, Registered Users 2 Posts: 3,636 ✭✭✭dotsman


    Louis Friend wrote: »
    You literally have no idea what you’re talking about.

    I'm sorry you are getting very upset. And don't worry, nobody is expecting you to apologise or correct your extremely misleading figures.
    Louis Friend wrote: »
    https://www.google.ie/amp/s/www.irishtimes.com/business/economy/irish-mortgage-rates-remain-stubbornly-high-new-figures-show-1.4531009%3fmode=amp

    The average variable rate for a new mortgage is currently 3.41%. The average fixed rate is 2.65%. The average blended rate is 2.78%.
    dotsman wrote: »
    Firstly, mortgage interest rates are below 3%
    Louis Friend wrote: »
    Repaying mortgage debt at a rate of 3%
    You have just proven my point, thank you. Oh, and by the way, those figures are for new mortgages. Most people's mortgages will be cheaper (lower LTV's and trackers etc).
    Louis Friend wrote: »
    Avant only allow overpayments of 1%, their maximum LTV for the 1.95% rate is 60%, they’ll only lend to people in cities, and they do crazy stuff at underwriting like treating your credit card limit as credit card debt.
    Not sure what the relevance of this is?
    Louis Friend wrote: »
    Average returns are NOT 10%, you’re just making that up.

    OK, this is just beginning to get silly. If you even read my posts, you clearly see the evidence. S&P 500 has returned an average of 10.37% since 1994. This includes the Dot Bomb, Enron, 9/11, 2008 Financial Crisis and Covid Pandemic.
    dotsman wrote: »
    SPDR S&P 500 (one of the more popular ETFs) Historic Performance

    And here is another example of the S&P 500 returning an average of ~12.2% between 1986 and 2019.

    And, you can of course, just quickly google it yourself. It doesn't matter whether yo are looking at the Dow Jones, S&P 500, Nasdaq etc, over any lengthy period (>10 years), you will typically see returns ~ 10%.

    But please, please, please, do not apologise for accusing me of "making it up".
    Louis Friend wrote: »
    And as for your CGT point, again it’s at best misguided. Investment returns come in a number of forms, capital gains, dividends, etc. Platforms like De Giro don’t allow people to buy US ETFs because they don’t comply with EU rules around documentation. So investors can’t access diversified ETFs unless they’re in the EU, in which case they’re taxed as funds at 41% with no scope to use the €1,270 annual exemption.
    How was it misguided? Was I incorrect to state that CGT is 33%? Or that the annual exemption is €1,270? I was simply stating that the figures you were using were absolute BS which is clear, and even shown to be so by your contradictory post above!

    ~99% of the profits from a diversified stock portfolio will be taxed at 33% (with the first €1,270 tax-free). The ~1% of profit from the dividends is treated as income, so taxed at whatever they normally pay.
    Louis Friend wrote: »
    So the investor can always buy single stocks and blow themselves up as stockpickers tend to do.
    Not sure what this even means?

    Louis Friend wrote: »
    Equally, you seem blissfully unaware of the restrictions around overpayments for people on fixed rates; 1% with AvantCard as outlined above. 10% with Ulster Bank who I’m with.
    Nope, I'm perfectly aware thank you. But, are you aware, as someone who seems to think that overpaying your mortgage is such an amazing financial decision, that you can make lump repayments when the fixed period expires? I mean, it's not like you are fixing for the life of the mortgage.
    Louis Friend wrote: »
    As I said at the outset, you have no idea what you’re talking about.
    Yes, and it was very rude, and very wrong.

    But you are clearly upset and not thinking straight, so I'll let it slide.


  • #178
    Louis Friend
    Banned (with Prison Access) Posts: 590 ✭✭✭Louis Friend


    “99% of the profits from a diversified stock portfolio will be taxed at 33%”

    Right…

    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.


  • #179
    EmmetSpiceland
    Registered Users, Registered Users 2 Posts: 11,024 ✭✭✭✭EmmetSpiceland


    Cyrus wrote: »
    There are plenty of smaller company pensions set up as prsa rather than occupational schemes. In that case employers contributions do count towards your threshold.

    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?

    “It is not blood that makes you Irish but a willingness to be part of the Irish nation” - Thomas Davis



  • #180
    dotsman
    Registered Users, Registered Users 2 Posts: 3,636 ✭✭✭dotsman


    Louis Friend wrote: »
    “99% of the profits from a diversified stock portfolio will be taxed at 33%”

    Right…

    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.

    I'm afraid I really can't help you at this stage.


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  • #181
    barney shamrock
    Registered Users Posts: 870 ✭✭✭barney shamrock


    Once the bickering starts in an otherwise interesting thread, I lose interest very quickly.


  • #182
    Cyrus
    Registered Users, Registered Users 2 Posts: 20,211 ✭✭✭✭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.


  • #183
    Bass Reeves
    Registered Users, Registered Users 2 Posts: 18,968 ✭✭✭✭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



  • #184
    StupidLikeAFox
    Registered Users, Registered Users 2 Posts: 7,721 ✭✭✭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


  • #185
    JimmyVik
    Registered Users, Registered Users 2 Posts: 5,367 ✭✭✭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 :)


  • #186
    JimmyVik
    Registered Users, Registered Users 2 Posts: 5,367 ✭✭✭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, Registered Users 2 Posts: 18,968 ✭✭✭✭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



  • #188
    JimmyVik
    Registered Users, Registered Users 2 Posts: 5,367 ✭✭✭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.


  • #189
    JimmyVik
    Registered Users, Registered Users 2 Posts: 5,367 ✭✭✭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.


  • #190
    Bass Reeves
    Registered Users, Registered Users 2 Posts: 18,968 ✭✭✭✭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



  • #191
    cruizer101
    Registered Users, Registered Users 2 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, Registered Users 2 Posts: 29,909 ✭✭✭✭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


  • #193
    JimmyVik
    Registered Users, Registered Users 2 Posts: 5,367 ✭✭✭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.


  • #194
    Blackjack
    Registered Users, Registered Users 2 Posts: 3,619 ✭✭✭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.


  • #195
    Cyrus
    Registered Users, Registered Users 2 Posts: 20,211 ✭✭✭✭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)


  • #196
    Cyrus
    Registered Users, Registered Users 2 Posts: 20,211 ✭✭✭✭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:


  • #197
    Blackjack
    Registered Users, Registered Users 2 Posts: 3,619 ✭✭✭Blackjack


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

    recommendation here.


  • #198
    JustAThought
    Registered Users, Registered Users 2 Posts: 5,324 ✭✭✭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.


  • #199
    Wanderer78
    Registered Users, Registered Users 2 Posts: 29,909 ✭✭✭✭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


  • #200
    BraveDonut
    Registered Users, Registered Users 2 Posts: 1,068 ✭✭✭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


  • #201
    Cyrus
    Registered Users, Registered Users 2 Posts: 20,211 ✭✭✭✭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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