Pay off mortgage or invest ?

swindiff · 24 February 2016 at 1:50PM

Myself and my partner between us own 2 properties, in the next few months we will be moving into one property and selling the other. The property we will be moving into currently has a mortgage of around £120k on it (value £220k).

Once we have sold the other property, done some things we want to do with some of the money from the sale we should have between £40k and £50k left over. My thought until recently was to used this to reduce our mortgage from £120k down to £70k-£80k, but I am wondering now whether or not this is the wisest thing to do.

Considering I could probably fix a mortgage for 3 years at around 2%, would it make sense to invest the money rather than use it to pay off a chunk of the mortgage. And what would be the best option for this amount of cash?

What would you do?

pledgeX · 24 February 2016 at 2:04PM

Does your mortgage allow you to overpay by that amount? I think they usually have a limit on the amount you can overpay by and if you exceed that the charges can be fairly hefty.

What sort of time scale are you looking at in terms of investing? A few years? A few decades?

Do you already have a 'rainy day' or emergency stash of cash? What about pension plans?

atush · 24 February 2016 at 2:09PM

What % is your mtg now? what other savings and investments do you have? Do you have pensions? What age are you?

swindiff · 24 February 2016 at 2:14PM

We will be in a position to be able to re-mortgage. Currently on a tracker deal with no tie-in.

Initially I guess it will be for the duration of the fixed mortgage that we take out. So looking at probably 3 years. I would then re-evaluate the situation at that time when I would need to choose another mortgage product.

Currently have about £7k which isn't really working for me at the minute. Pretty fortunate as far as pension goes. Got 20+ years in a final salary scheme at work, although this is due to change to a Career Revalued Benefits scheme next year. But I should retire on 50% salary plus full state pension for my partner and myself.

swindiff · 24 February 2016 at 2:15PM

Mortgage is currently about 55% LTV, we are both 45

I currently pay 8% into my pension and my employer pays 18%. From October they will match a further 1% with additional contributions. So I will then go to 10% from myself and 19% from my employer.

jimjames · 24 February 2016 at 2:32PM

I've invested my money rather than paying off mortgage. Seems like a no brainer to me when mortgage rate is 2% to be able to beat that with investments. Use a S&S ISA and it's tax free too. (I'm same age too)

crux · 24 February 2016 at 3:07PM

swindiff wrote: »

Considering I could probably fix a mortgage for 3 years at around 2%, would it make sense to invest the money rather than use it to pay off a chunk of the mortgage. And what would be the best option for this amount of cash?

Counter question... How familiar are you with the practicalities and risks of investing?

If the answer is - not as much as i'd like - then investing is for sure NOT a no brainer.

What would I do? I consider part of my cash as house money not investing funds - if I can beat the 2% mortgage rate safely with that money (after tax) then I would do so. If not, I would either get an offset or pay down the mortgage.

For what it's worth... I do invest with other savings and I also invest through a pension - Just consider my house as personal diversification away from my other investment risks - I'm quite comfortable with the thought that I might not ultimately make as much money this way.

pledgeX · 24 February 2016 at 3:07PM

jimjames wrote: »

I've invested my money rather than paying off mortgage. Seems like a no brainer to me when mortgage rate is 2% to be able to beat that with investments. Use a S&S ISA and it's tax free too. (I'm same age too)

Out of interest, are you investing in something that is guaranteeing a return of 2% (or greater), or are you picking funds that could potentially lose money?

maxie014 · 24 February 2016 at 3:43PM

I had an investment trust running alongside my mortgage only £50 a month with the intention of paying my mortgage off early.
Unfortunately the endowment was a waste of time but I had a claim,plus the proceeds of the investment trust,which allowed me to get shot of my mortgage 3 years early.
Do I regret cashing the it in,not really,i was pleased to see the back of it,i can remember the fiasco when interest rates went sky high due to the erm was it?,in your position id maybe pay half the money off the mortgage and invest the other half.
The only thing I regret was not keeping the it going a bad decision by myself.

swindiff · 24 February 2016 at 4:05PM

When I say invest, I am talking about 0 risk investment. So splitting it over as many current and savings accounts as I need to, to maximuse the return. Is the return I am likely to get above say a 2% mortgage rate worth it?

zolablue25 · 24 February 2016 at 4:07PM

I currently have an offset mortgage at 1.25%. I have enough funds to fully offset the balance of my mortgage but I can use the money better in the variety of current accounts out there offering decent rates (3%+) and so my money is there instead. If I were you (which, of course, I am not) I would open up those current accounts and stash the cash there if, as expected, you could beat the 2%. If rates change, take the cashout of the current accounts and pay off your mortgage.

Like Crux, I would be loathe to invest my mortgage money. Apparently investments can go down as well as up. I do, however, make regular contributions to a S&S ISA with money not eararked for my mortgage.

Pay off mortgage or invest ?

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