Investment Vehicle

LowerO

With a couple of endowment policies maturing shortly to pay off the interest only element of my mortgage, I will be left with approx £55K to cover ideally over a maximum of 10 years. The safe bet is to continue with a repayment mortgage, but I am tempted to take an interest-only and look at an alternative repayment vehicle for the £55K capital.

I am 48, married, high rate tax payer. I estimate that I could have up to £600 per month available to invest (based on the likely interest-only mortgage cost against the current cost of mortgage and endowments). So I've been looking at the boards to see what options there are - S&S ISAs are mentioned a lot.

It may be prudent to do some of the £55K via repayment to reduce my risks, although I contribute to a company pension and company share scheme. I also pay £43 per month into a private pension scheme (taken out before my current employer's arrangement) so wondered if that might be an option for the investment?

Would welcome some ideas (I've also posted in the mortgage forum in case this is not the right place).

Thanks

calypso_rhapsody

Hi LowerO - hope you've had a response on the mortgage forum as this one seems rather reluctant to engage

Seems to me that it is really a question of your attitude to risk and reward. Personally i am a bit hesitant, particularly in volatile markets, to look at S&S to meet a fixed liability at a fixed point in time in the future and i would personally take the 'safe bet' of a repayment mortgage.

But you have to balance the return you may make on S&S with the risk of having a shortfall - which on the face of it is not that great (£600 pm over 10 years is quite a bit more than your liability so you could take quite hit and still be able to pay off the mortgage).

If you went the repayment option, you would still have surplus money to put into S&S ISA or pension ... pensions have the advantage of tax releif on the way in (and as a higher rate tax payer that is quite valuable) with 25% tax free on the way out ... S&S ISAs offer no tax relief on the way in but tax shelter for any gains inc divis during the period. S&S ISAs are also more flexible as you don't have to wait to 55 to realise them (if say you take early retirement or are made redundant ...)

Not sure this is very helpful .. but it is at least a reply!

gadgetmind

Putting anything on which you pay 40% tax into a pension is very efficient. Even better is paying extra into the company pension if you get to benefit from NI savings.

After that, S&S ISAs are an obvious choice, and you can choose investments that suit your investment timescale and needs. Equities are very juicy IMO but not the only fruit.

gadgetmind

BTW invest versus pay down is a difficult decision. Investing has a better chance of long-term rewards but being mortgage free is a *very* nice feeling. Only you can decide.

LowerO

Thanks both for contributing. I've done some more calculations and I think that I will end up with £35K continuing on repayment and £20K on EITHER repayment or interest only.

So it is potentially 'only' £20K that I'm looking to cover with an investment.

I like the idea of finding a tax efficient vehicle, so initially I will investigate the pension opportunity.