Dominic Coyle answers some of your queries:
SSIA v mortgage: My wife and I have a mortgage of €120,000 over 25 years at 2.9 per cent, which we just started. Both of us are in our early 40s. We also have two SSIAs, where we are paying €500 a month. We can contribute to the SSIA for another 18 months.
I believe that, by switching the €500 a month that we are paying to the SSIA to paying off the mortgage early, we will have paid a lot less interest and have our mortgage paid off early. So what is the big deal with SSIAs for people like us who have mortgages?
Mr J.K., email
Examining your financial options on a regular basis is a commendable approach. Too many of us spend more than we need or lose out on easily available savings simply by refusing to run a regular audit of our commitments and/or investments.
It's also true that the general advice to people is to pay off their debts before looking at savings. However, the Special Savings Incentive Account (SSIA) scheme is a no brainer. Never again can you expect a government to augment your savings by 25 per cent, with no strings attached apart from keeping your hands off the money for five years.
Of course, it's all well and good to say that but what about the figures. I asked Permanent TSB to run through the scenario you present and calculate the impact of continuing to pay €500 into your SSIAs or to reduce those payments and increase your mortgage payments.
None of the calculations take into account any interest earned on the savings or the impact of existing tax on that interest. They only concern themselves with your own contributions and the Government's 25 per cent bonus.
Obviously, they cannot take account of the future direction of interest rates. This a purely an "on the basis of today's conditions" exercise.
Scenario 1: First of all, let's look at what happens if you do nothing. Assuming you just continue to pay the current amount on your mortgage, at the end of the 25-year term, you will have paid €48,877.78 interest.
Scenario 2: If you continue to pay the €500 into the SSIAs over the next 18 months, it would amount to €9,000. The Government contribution would raise this to €11,250. If, upon maturity of the SSIA, you then lodge this amount (i.e. just the monies built up over the next 18 months) against your mortgage and then continue to pay just the standard mortgage repayment for the rest of your mortgage terms, you will pay mortgage interest of €38,849.77 over the life of the loan and will pay off the mortgage in 263 months (21 years and 11 months).
Scenario 3: Turning to your preferred option, assume you pay the €500 into your mortgage account for the next 18 months rather than into the SSIA and then revert to your standard repayment amount. That would leave you with an interest bill over the life of the loan of €40,375.91 and a loan lasting for 22 years and six months.
As you can see from just these three options, losing out on the Government contribution would actually cost you money over the length of your home loan. So the simple answer to your question is that you will lose rather than save money by switching the €500 from your SSIA to the mortgage for the remaining 18 months of the SSIA term and it will, in fact, take you longer to pay off the loan.
There are a few more options that you could consider, although these will involve more than simply switching existing expenditure from the SSIAs to the mortgage.
Scenario 4: If you switch the €500 from the SSIAs into the mortgage for the remaining 18 months of the savings term and continue to pay this €500 a month extra against the mortgage even after the SSIA scheme ends, you would pay interest of just €20,305.40 on the loan and have paid the 25-year loan off after just 11 years and one month. This is without paying any lump sum from the matured SSIAs into the mortgage account.
Scenario 5: If you just stay as you are, paying the €500 a month into the SSIA and the standard monthly repayment on the mortgage but, once the SSIA scheme ends, start paying an extra €500 a month against the mortgage, you would pay off the loan in 12 years and one month with a total interest bill of €23,852.90
Of course, you could use more of the lump sum available when the SSIA scheme ends to reduce the life of the loan and the interest due even further.
Irish Nationwide: I opened a share account with Irish Nationwide in February 2004 and was informed that I would not qualify for any windfall unless the account was held for two years and demutualisation occurred after those two years.
In last Friday's edition of your paper, a report appeared to offer a contradictory view when it stated: "The legislation stipulates that you must have a minimum balance of €125 in your account from July 1st of the previous year and up to the day on which the members formally sanction the conversion". Under these conditions, I would appear to qualify for any future windfall. Am I right and is Irish Nationwide wrong?
Mr M.M., Kilkenny
I wouldn't get your hopes raised too high. The law sets the €125 minimum but, as I wrote in Q&A last week, mutuals have the right to raise this threshold if they think it is being abused by carpetbaggers - people who join mutual groups in the hopes of a quick payout on demutualisation.
Last February the threshold was €20,000. The society's rules state that share accounts can be closed where the member's balance falls below the threshold in operation at the time the account was opened. In your case, that means you need to keep at least €20,000 in the account.
On the time limit, again as stated in Q&A, the Building Societies Act 1989 stipulates in Section 100, paragraph 6, that only those members who have been members of the society for two years up to the day on which notice is given of a resolution to convert from mutual status are eligible for a windfall.
The other relevant date is the one governing eligibility to vote on such a conversion resolution. The same Act says that voting members, for the purposes of a poll on conversion, are those who have been members since the end of the previous financial year with a minimum balance of €125 continuously held over that period. The relevant section of the Act is section 69, paragraph 1(b).
What that means is that you are likely to be in a position to vote on any conversion resolution when such a vote takes place. You will have to hope that notice of such a resolution does not occur before February 2006.
At the moment that is unlikely as the Government has indicated that its new legislation to facilitate the Irish Nationwide demutualisation will be in place by the end of the year. However, this legislation has been much delayed and it would not take much more delay to bring you into the windfall catchment area.
Please send your queries to Dominic Coyle, Q&A, The Irish Times, D'Olier Street, Dublin 2 or e-mail to dcoyle@irish-times.ie. This column is a reader service and is not intended to replace professional advice. Due to the volume of mail, there may be a delay in answering queries. All suitable queries will be answered through the columns of the newspaper. No personal correspondence will be entered into.
