To Pay or Not To Pay Advice

spannerspencer

If you have a lump sum that equates to the balance of your mortgage ie £70000 lump sum mortgage £70000 at 4.35% interest, can you invest it so the lump sum is working to pay off the mortgage?

Voyager2002

Depends on whether or not you are a tax-payer. You can certainly find cash mini-ISAs paying more than five per cent, but income from other investments would be taxable. Whereas the saving you make by paying off part of your mortgage is always tax free.

DavidHM

True, but if you are a basic rate taxpayer you only need to be getting 5.44% gross to beat the mortgage, which should be available on plenty of (cash and non-cash) investments. Of course going for a higher rate of return, once you get beyond the £3k ISA allowance and paying into regular savings accounts that offer short-term high returns, will mean a higher level of risk.

Finally, there's the possibility of a pension overpayment which will come out of gross income, rather than net, if you're in work, so that can potentially provide a higher return than the mortgage repayment also.

It all depends on your own situation and above all, the level of risk and involvement in savings or investment managing that you are comfortable with, but in principle it is perfectly possible to get a higher effective return by investing the lump sum than by paying off the mortgage.