I took out a 25-year tracker mortgage for €190,000 at 0.9 percent in 2006 to buy an apartment. The contract ends in 2031 when I’m 69.
It’s always been important to me to pay off the mortgage before I retire and I have a €20,000 mutual fund from an old SSIA and have also overpaid the monthly mortgage payments so I should have paid the principal back by 2026. I have €40,000 in emergency reserve and have a regular pension.
With inflation, my investments can slide and interest rates go up. Should I cash in my savings, pay off my mortgage now and put the savings in a bond fund? If the stock market goes down, I might get a better return when the market recovers. I’m retiring in 2027 and I hope to have a sizeable savings fund to top up my pension.
You have a lot to do here and I think you could benefit from the services of an independent financial planner. There are many out there and word of mouth from friends or family would help. The Society of Financial Planners (www.sfpi.ie) can also help you find one near you.
As you will be retiring in five years, I think you are right to be cautious as you approach this milestone. You’ve done a great job keeping your debt low and I can sense your risk aversion.
Your company pension plan likely has a “life-styling” option that automatically reallocates the fund from riskier stocks to safer bonds and cash in the years leading up to retirement – ask your pension manager about this.
As for the mortgage, I honestly wouldn’t want to do anything. You practically have it for free as the interest you pay is so far below inflation and you wouldn’t get more in a savings or deposit fund given the liquidity you would need to hold and you say you have it will be deleted by the retirement date.
Otherwise, you will always receive a tax-free lump sum that you can use to repay a remaining loan. Interest rates can of course rise, but probably not by much, and perhaps not even this year as signaled by the ECB.
Instead, I would focus on maximizing your retirement contribution; It’s the only vehicle enjoying generous tax breaks, and even at your current age, it’s not too late for that.
Of course, if you have debts other than the mortgage, it’s a good idea to pay them off as the interest burden is likely to be higher. Ask the insurance company for an investment policy forecast; They use a conservative rate and give you an idea of what its value will be by your 65th birthday.
Q I was included in my parents’ will to inherit a summer house (indicative value €320,000). I don’t live in the house and it’s not my parents’ main residence either. I own an apartment in Dublin. Are you wondering if it would be less costly to simply transfer the house now or even sell it to me for less than market value?
I assume if it is signed for me is it considered a gift and do I have to pay CGT for anything over and above the gift allowance? That seems to me to be the same amount I would have to pay if I wanted to. If they sell it to me, is that just for stamp duty? Which of these options is the most cost-effective?’
AGiving gifts is largely irrelevant for tax purposes, so the decision should be made according to your parents’ preferences. The tax associated with a gift or inheritance is the same – Capital Acquisitions Tax.
The rules currently allow an adult child to receive cumulatively (during the life and after the donor’s death) up to €335,000 from the parents, and whether you receive this now, as a gift or as an inheritance after the transition incurs the same fee , which is currently 33 percent, and it looks like the property will fall below that limit anyway.
Having the home appraised professionally would be a good start so you at least know where you stand. It’s important to realize that if your parents give you the house now and give you all the other assets later, the tax burden is simply deferred to that point in time. You can’t know if the threshold will go up or the tax go down by then, so it’s just speculative.
When buying real estate, things are a bit more complicated. Your parents cannot sell it to you below market value, or if they do, that lost portion is itself considered a gift from Revenue and becomes part of the allowable threshold for future billing. I think it might be an idea for the three of you (and indeed all the other siblings) to seek legal advice on the situation, including the cost of stamp duty which is the transaction fee.
I’m glad your parents have made a will – this is by far the most important action they can take in any way – and it should make crystal clear what approach and why they want to take rather than make the decision to be seen, to be driven by you.
https://www.independent.ie/life/home-garden/homes/should-i-cash-in-my-savings-to-pay-off-my-mortgage-41409027.html Should I cash in my savings to pay off my mortgage?