Paying Mortgage v ISA v Pension

gavinm79

Any advice here would be appreciated.

Im 30 and, after outgoings, am left with around £2000 per month. At present I have an interest only £156k mortgage. As I am on a tracker my repayments are £196 pcm - bound to go up soon I know!

Would I be best blitzing my mortgage (it is flexible and I can pay as much as I like on top of the interest), put a load of money into a pension or maximise two ISAs eash for me and my wife (one cash and one S/S)?

I assume the best thing would be to do all three but in what proportion? ie. £1000 per month off mortgage, £400 into pension and £600 ISAs?

Thanks in advance.

dunstonh

Would I be best blitzing my mortgage (it is flexible and I can pay as much as I like on top of the interest), put a load of money into a pension or maximise two ISAs eash for me and my wife (one cash and one S/S)?

Thats a bit like saying should I pay the gas bill, electric bill or water bill. You should be doing all three.

I assume the best thing would be to do all three but in what proportion? ie. £1000 per month off mortgage, £400 into pension and £600 ISAs?

Interest only mortgage means you should at least make sure you are doing something to ensure you have enough money to pay it back. Then you should be building an emergency fund and you should be doing a pension.

There is a rough rule that says you should aim to have £35k in your pension by age 35. You are 30. How close are you to that 35k?

gavinm79

thanks dunston.

only about £10k in the pension fund now. pathetic really but due to the fact I had debts to clear due to being an idiot when i was younger and only been earning decent money for last 3-4 years.

CLAPTON

well; mortgage repayment versa savings is simple... if you can get more (after tax ) interest by saving that repaying the mortgage then save; if not then repay the mortgage ... if you sa=ve and mortgage interest rates go up then simply use the savings to pay off some of the mortgage

pension versa SS... more difficult...
what is your employment/ pension situation? does your employer contribute to your pension?

gavinm79

Im a solicitor and have my own pension, no contributions from employers. I know there is a sticky thread about pensions v ISAs elsewher and I will have a look at that. Thanks Clapton.

DiggerUK

dunstonh wrote: »

"Thats a bit like saying should I pay the gas bill, electric bill or water bill. You should be doing all three......"

gavinm79,

As a solicitor, I hope you have learned to read between the lines of statements, and identify the wordsmiths and spin doctors.
If you don't pay your utility bills you will get cut off, if you don't pay your mortgage you get thrown out.
However, you can put off saving until you can afford to do so, without anybody repossessing or disconnecting

That mortgage has to be paid sooner or later. A debt is a debt no matter what it is called.
Once the mortgage is clear your cash flow will increase because the payments stay in your bank account. At the end of the day savings are all about spare cash, and now is not the time to be holding on to debts.

Best of fortune.

lisyloo

At the end of the day savings are all about spare cash, and now is not the time to be holding on to debts.

Not sure this advice is correct for 100% of circumstances.
I have a mortgage on which I pay 0.99%.
I am in fact not only not paying of off but even increasing it to get better returns elsewhere.
The money in my cash ISAs is getting 3% and is totally safe, so there is no risk and it's even fixed.
I am not spending it and I'm not increasing my overrall debt.

Pensions give great tax relief.
ISAs have greeat long term benefits.

It makes sens to pay off debt which is at a HIGH rate, but there can be good reasons for putting money elsewhere.
For example you employer might match your pension contributions and you get tax relief, so it would be crazy to turn down that opportun ity.

Whilst I think I know what Digger is getting at, you have to take into account circumstacnces, and if you (for exmaple) pay higher rate tax and your employer has a great pension offer, then you really hwave to think very seriously about that compared with paying off debt that is not at a high rate.
So I would not recommend applying that advice to ALL scenarios.

DiggerUK

lisyloo wrote: »

The money in my cash ISAs is getting 3% and is totally safe, so there is no risk and it's even fixed.

How inflation is going to pan out we don't know, apart from the very real possibility that it is going up.
CPI is 3% and RPI is 3.7% this month, your 3% does not look so hot at the moment.


gavinm79, reducing debt has no downside, savings and investments today, have more downside potential than what you can shake a stick at.

Edit, if like lisyloo you can put in an A/C that is paying more than your repayment interest, then do that.

lisyloo

How inflation is going to pan out we don't know, apart from the very real possibility that it is going up.

Personally I think the spike is temporary, but yes, we don't know.

your 3% does not look so hot at the moment

I agree, but it's better than an effecttive return of 0.99% isn't it?
What would your suggestions be for the money?
I would honestly be interested in your advice.
I do have pensions, S&S ISAs & gold, but like to max the cash ISAs as well.
We are also expecting an inheritance at some point and if that exceeds our debt we will then have to pay 40% interest on anything outside ISAs, hence it makes sense to maximise the use of ISA allowances each year now, then when we inherit we can reduce the debt and pay no tax.
I am open to any new idea.

gavinm79, reducing debt has no downside

I disagree with NO.
Here's an example.
If you are a 40% tax payer expecting an inheritance, you would be better off stashing in ISAs. Otherwise when the inheritance comes you will potentially have no debt to pay off and can only use the small annual ISA allowance that does not allow for a large lump sum.
Clearly this is a specific scenario.
But I do not agree with this piece of advice as 100% correct.
Perhaps 95% or even 98% but not 100%.

Vincenzo

Being in a similar position (and a similar age) I decided to save everything extra in cash for now. I have 7% of my income going into my pension (employer used to contribute 3% also but has frozen this benefit) and regular savings into funds within ISAs.

The money I am saving (mostly due to low rate tracker mortgage) is all being saved in cash, that way I can decide what to do with it when things return to some form of normality. In the meantime it gives me peace of mind that if interest rates sky rocket or I lose my job I have a good safety net.

mintedmatty

As somebody posted further up, it maybe worth looking at all 3 and balancing what you have. Taking advantage of your mortgage rate being 0.99% is too good to turn down and it would make sense to overpay? The 35k by age 35 in a pension is a good rule of thumb and if it works out you rae maybe short then upping your contributions wont be a a bad thing?

Saving the rest into a balance of Isa, short and long term savings is worth looking at aswell?

Having disposable income of 2k a month is large enough amount to make a considerable difference to your lifestyle both in the shortterm and in the longterm. I have come across far too many people who have had similar amounts spare and just ended up blowing it all and regretting it later!