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29 Jun 2022

Making Cents: Our readers’ questions answered

Making Cents: Our readers’ questions answered

No matter how you pay for it, don’t put off treatments like IVF

THIS WEEK I’m going to share with you four questions I received from readers in recent weeks and the answers I gave to each.
Question
Liam, I have two questions and they are directly related. My husband and I are considering IVF treatment and the cost per cycle we’ve been told is about €5,000. We have about €10,000 in savings and we were wondering should we use them to fund the cost or should we borrow the monies? And regardless of how it’s paid for, can we get tax relief on the cost of this treatment?

Answer
I'd personally borrow the funds rather than using your savings.
If you use your savings, it reduces the amount left over considerably and would be too low at c. €5,000. I think you need more of a cushion than that. If you borrow €5,000 over 4 years, and I’d recommend you’d structure the loan term over that period of time just to keep the monthly cost low, it will cost you about €122.55 per month at an interest rate of 8.5%. The interest cost is about €882 over this term which I think is fine but the key for me is that you're still keeping your savings of €10k in place.
And in relation to tax relief for fertility treatments, the good news is that tax relief is available and granted at 20% of your costs, which include any drugs used as part of the treatment.
So, if the cost of one cycle is €5,000, the net cost after tax relief will be €4,000.
I’m not sure if you are having this treatment in Ireland or abroad but just in case it’s abroad, you can still avail of the tax relief at 20% provided the practitioner carrying out the treatment is licensed in that country to do so.

Question
Liam, I’m coming to the end of a 3-year fixed term of 2.8% on my mortgage on June 26. Initially I was thinking of switching lenders but after reviewing rates on offer, I think I'll just stick with my present lender for the time being. My question is what length of fixed term would you advise to re-fix at now? The main options are 3 year at 2.95%, 5 year at 3% and 7 year at 3%. My gut feeling is to go with the longer term but maybe the 3 year would be a better option? Any advice would be most welcome.

Answer
When you stand the 3-year fixed rate alongside the 7-year fixed rate in particular, the difference is obviously only 0.05%, and I guess the question is, is it worth paying that extra % for the security of 4 more years at 3%?
And I believe the answer is, of course it is, no question. Who knows what way rates will be in 3 years' time. They could be lower or a lot higher but you can take that uncertainty out of the equation and control what you can control by locking into a fixed rate for 7 years now.
I personally wouldn't take the gamble of hoping fixed rates in 3 years’ time will be lower than what the 7-year rate is now. There are far too many unknown external factors you can't control which is why, out of all the options you outlined, I’d personally choose the 7-year option.
That’s provided you see yourself in the property for the next 7 years that is. If you think you'll move in 4 or 5 years then lock in at the 5-year fixed rate, but if you aren't and you think you’ll be there long term, then a bit of a no brainer for me especially when the differential between the 5-year fixed rate is 0% and 0.05% for the 3-year fixed rate.

Question
I have a Defined Benefit (DB) pension but I’m thinking of moving to a new employer. If I do, the amount I’m giving up from a DB perspective is c. €8,000, because I have a retained benefit of €20,000 right now and if I stayed for another 8 years that becomes €28,000.
So, if I move to a new company, who don’t have a DB scheme, and they don’t, how much do they and I need to contribute in order for me to make up for the loss of that €8,000.


Answer
If you apply the safe withdrawal rate from a pension fund, which is considered to be 4%, you’d need to build up a fund of €200,000, because that amount would pay you an annual income of €8,000 per year i.e. €200,000 x4%.
So, over 8 years the amount you and your new employer would need to contribute between you is €25,000 per year.
The amount is probably less than that because I haven’t factored in growth, you’d expect the fund would grow by over those 8 years and if it did return say 3% per year, then the amount required each year reduces to €22,500.
And if you personally contributed half of this, when you factor in tax relief it would cost you about €6,750 a year.
So, to work this out, when you know how much you need to accumulate in total, you need to divide the annual cost by your new salary and that’s the % you need to be saving every year to compensate for the loss in your DB pension. And whether that % comes from you alone or your new employer or both of you, regardless of the way you carve it up, at least you know what the cost is, which might partly help with the decision of whether you should stay or go.

Question
I’m buying a house and have mortgage approval etc. The bank told me I needed to get mortgage protection cover. So, I applied for cover but was turned down because of high blood sugar levels and my history of endometrial cancer. I’m now worried that the bank won’t give me the mortgage. What do I need to do, I’m very worried.

Answer
First off I spoke with two other life assurance companies and asked them whether they thought you’d be declined with them if you make an application. And they said what I gave them wasn’t enough to give me an indication as to whether it would be approved or not. They’d need more information on your blood sugar levels and your stage of endometrial cancer to give a more informed indication.
But they did say those items don’t cause an outright decline either but if a proposal has been declined elsewhere on the market, they would be concerned because the underwriting criteria followed is similar with all life companies.
Having said that, you’ll have to make another application for cover anyway because a bank will look for two declined mortgage protection letters from two different providers if they are to release funds for your house purchase.
And they will have to allow you to draw down your mortgage because under the Credit Consumer Act 1995, there is a provision in it (section 126) which allows you to proceed ahead without having mortgage protection in place, provided you have sought cover but have been refused, which you have.
You’ll need to sign a waiver for the bank confirming that you are aware you don’t have life cover so don’t worry anymore or think they won’t give you money, because they have to.

Liam Croke is MD of Harmonics Financial Ltd, based in Plassey. He can be contacted at liam@harmonics.ie or www.harmonics.ie

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