Is this a good financial plan?

bilbot79

...to upgrade the house but borrow the maximum from the bank, including 100k that we don't need, then...

Keep the 100k split between cash and investments to live off while 100% of wages goes into paying off 400k mortgage at say 3.50%. Pension contributions to be maxed out with a view to early retirement at 60 years old (im 40 now)

daheff

bilbot79 wrote: »

...to upgrade the house but borrow the maximum from the bank, including 100k that we don't need, then...

Keep the 100k split between cash and investments to live off while 100% of wages goes into paying off 400k mortgage at say 3.50%. Pension contributions to be maxed out with a view to early retirement at 60 years old (im 40 now)

No

Borrowing to repay borrowings is not a good idea

bilbot79

daheff wrote: »

No

Borrowing to repay borrowings is not a good idea

Well technically it's profit taking with simultaneous re-borrowing. I was thinking the advantage in the long term is

-Free double your money from pension contributions plus about 6% growth on top of that.

-Should technically be able to beat the 3.5% debt interest rate with quasi safe investment.

If I feel the need to pay the money off the mortgage I can simply do so.

What do you mean upgrade your home - how are you realising this cash?

bilbot79

[Deleted User] wrote: »

What do you mean upgrade your home - how are you realising this cash?

Selling my house and buying a better one. My mortgage if Max borrowed will go from 130k-400k but the new house only need bring me to 300k

vkus6mt3y8zg2q

bilbot79 wrote: »

Well technically it's profit taking with simultaneous re-borrowing. I was thinking the advantage in the long term is

-Free double your money from pension contributions plus about 6% growth on top of that.

-Should technically be able to beat the 3.5% debt interest rate with quasi safe investment.

If I feel the need to pay the money off the mortgage I can simply do so.

Sounds foolproof so. Go for it

daheff

bilbot79 wrote: »

Well technically it's profit taking with simultaneous re-borrowing. I was thinking the advantage in the long term is

-Free double your money from pension contributions plus about 6% growth on top of that.

-Should technically be able to beat the 3.5% debt interest rate with quasi safe investment.

If I feel the need to pay the money off the mortgage I can simply do so.

eh........ what now?

can you spell this out a bit more

lawred2

Live off 100k?

For how long?

2 years?

bilbot79

lawred2 wrote: »

Live off 100k?

For how long?

2 years?

I don't know. Until it runs out and then I just using my wages again instead of lumping all of them into mortgage and pension.

I guess the real question here is if you could borrow 100k at a rate of 3.5% for the sole purpose of investing it in pensions and regular investments to gain a better return, would that be a good idea. A sort of carry trade...

Any downsides?

bee06

bilbot79 wrote: »

Selling my house and buying a better one. My mortgage if Max borrowed will go from 130k-400k but the new house only need bring me to 300k

Are you saying you want to borrow 400k to buy a 300k house?

fritzelly

bee06 wrote: »

Are you saying you want to borrow 400k to buy a 300k house?

Sounds totally legit, no reason at all for the bank to refuse you.

bilbot79

fritzelly wrote: »

Sounds totally legit, no reason at all for the bank to refuse you.

Totes agree. Different if I was a first time buyer obviously but the built up equity is mine.

daheff

bilbot79 wrote: »

I don't know. Until it runs out and then I just using my wages again instead of lumping all of them into mortgage and pension.

I guess the real question here is if you could borrow 100k at a rate of 3.5% for the sole purpose of investing it in pensions and regular investments to gain a better return, would that be a good idea. A sort of carry trade...

Any downsides?

ok so i get you now. you want to borrow to invest in your pension. If you were getting 40% tax relief on pension contributions in first couple of years (cos lets face it you wont get it all contributed year 1 or 2-and possibly longer).

so have you worked out exactly how much you would repay over 20 years? vs expected pension return?

Downsides are that if moneys invested in pension you dont get it until you retire. But what if you lose your job, or get sick etc and cant repay the loan..... or something happens that you need your cash for now?

if the numbers stack up (& banks will lend it) then go for it

bilbot79

Well the whole time im living off the 100k the mortgage is still getting paid so that will reduce over time.

The 100k costs about 4k per year while 15-20k of pension contributions would make a profit of about 7-8k per year. So a differential of 3-4k.

8-10k of overpayment on a mortgage of 300k on a 10 year term would save how much? I can't work it out

Edit: According to the mortgage calculator the saving per year from that overpayment would be 1200. Total free money here = 2800 minimum presuming the remainder wasn't even invested. If it was, maybe 5k profit.

I guess there is no reason not to do that really.

lawred2

bilbot79 wrote: »

Well the whole time im living off the 100k the mortgage is still getting paid so that will reduce over time.

The 100k costs about 4k per year while 15-20k of pension contributions would make a profit of about 7-8k per year. So a differential of 3-4k.

8-10k of overpayment on a mortgage of 300k on a 10 year term would save how much? I can't work it out

Say what? 8k gains on 20k contribution? What fund is that?

That sounds a bit far fetched

bilbot79

lawred2 wrote: »

Say what? 8k gains on 20k contribution? What fund is that?

That sounds a bit far fetched

20k of gross contributions cost 12k net per annum

lawred2

bilbot79 wrote: »

20k of gross contributions cost 12k net per annum

Ah you mean tax relief..

Snipp

bilbot79 wrote: »

...to upgrade the house but borrow the maximum from the bank, including 100k that we don't need, then...

Keep the 100k split between cash and investments to live off while 100% of wages goes into paying off 400k mortgage at say 3.50%. Pension contributions to be maxed out with a view to early retirement at 60 years old (im 40 now)

What bank would agree to that?

pwurple

The main risk is that the pension tanks ....

Who knows people who lost a fair whack off their pension a few years ago when the market went splat?

Also, any change in circumstances, and the money is inaccessible. Pension funds are locked down fairly tightly.

The J Stands for Jay

bilbot79 wrote: »

...to upgrade the house but borrow the maximum from the bank, including 100k that we don't need, then...

Keep the 100k split between cash and investments to live off while 100% of wages goes into paying off 400k mortgage at say 3.50%. Pension contributions to be maxed out with a view to early retirement at 60 years old (im 40 now)

60 isn't early retirement.

bilbot79

Snipp wrote: »

What bank would agree to that?

They probably want me to use less deposit and max out borrowings to their own profit.

bilbot79

McGaggs wrote: »

60 isn't early retirement.

It is now that state retirement is 68! You're thinking of 'dream' early retirement, im thinking of realistic early retirement.

macman501

How can you even think this is a remotely good idea? on a 400K mortgage?
400K is not so far above the average for some regions right now.

macman501

edit

bilbot79

pwurple wrote: »

The main risk is that the pension tanks ....

Who knows people who lost a fair whack off their pension a few years ago when the market went splat?

Also, any change in circumstances, and the money is inaccessible. Pension funds are locked down fairly tightly.

Surely the losses are limited to profits on the funds though?

If 10k net becomes 18 and 18 grows at 6% instead of 10 growing at 6% it would take one hell of a loss to make it a zero sum game in the end. What sort of losses we're people experiencing in pension values?

True the money is locked up but can't you take it out and pay the tax if need be?

bilbot79

macman501 wrote: »

How can you even think this is a remotely good idea? on a 400K mortgage?
400K is not so far above the average for some regions right now.

See above post calculating profit of 5k per year at low risk.

pwurple

bilbot79 wrote: »

Surely the losses are limited to profits on the funds though?

If 10k net becomes 18 and 18 grows at 6% instead of 10 growing at 6% it would take one hell of a loss to make it a zero sum game in the end. What sort of losses we're people experiencing in pension values?

True the money is locked up but can't you take it out and pay the tax if need be?

I don't know how much you have in there already... but I certainly know people whose pension fund more than halved. Losses of over 300k for a married couple.

Also, the law can change. Remember the Pension Levy? Govt just decides it wants to pull a few percent off every year...
Also , check annuities, arf, caps on withdrawal, and your ability to self manage and get it out at 70. Read up if not already done.

I would run the numbers against difference in LTV on the mortgage too, to check thete. At 3.5% , that's a high LTV. Bring your LTV down to 50% ... Mortgage rate would be 2.7%. What are your Savings over the life of a mortgage on that interest rate?

If you really want to retire earlier trade down or stay where you are instead of trading up.

wench

bilbot79 wrote: »

Surely the losses are limited to profits on the funds though?

What makes you think that? The invested money isn't guaranteed in any way.


If your fund had invested heavily in Irish bank shares before the crash, your money was essentially wiped out. A share of BOI went from €400 in Feb 2007 to €5 now.

bilbot79

wench wrote: »

What makes you think that? The invested money isn't guaranteed in any way.


If your fund had invested heavily in Irish bank shares before the crash, your money was essentially wiped out. A share of BOI went from €400 in Feb 2007 to €5 now.

This is rare though. And part of the worst financial crisis since the great depression. Chances are it won't happen like that again

pwurple

bilbot79 wrote: »

This is rare though. And part of the worst financial crisis since the great depression. Chances are it won't happen like that again

Well, it happened twice in the last 100 years, with another few smaller crashes thrown in, the dot com bubble for example. So, chances really are that it WILL happen again.

And the problem is really your lack of control. You are letting fund managers do the managing there in a pension. You can pick a cash fund if you somehow anticipate a crash before the investors.. but that won’t stop the govt raiding pensions again when they are short.

So, it’s a risk, which you can choose to take or not. Would like to hear how it goes for you.