Happy Dilemma

blazebuster

I have an offset mortgage with Woolwich Openplan with approx. £75k outstanding. I have approx £45k offset. In addition, i have approx £140k in various PEPS & ISAS. Children are starting Uni in September, and so extra income would be nice. Question is, which is the best way to generate that income. Pay off mortgage and therefore save the monthly repayment, or reorganize finances to generate income??

Mattchew

Why not use the money to buy your students a house where they're going to uni? You can get them to have friends move in and pay rent (the mortgage), so your child would live there rent free, or cheaper than elsewhere. Also, due to current house market, the likelyhood is that when your child has finished uni, the house will have appreciated, earning you a profit and offsetting any costs incurred along the way.

nrsql

Peps/ISAs should be doing better than the mortgage rate unless it's very high - what is your mortgage rate. Might be better to move to a lower rate mortgage rather than offset that amount.

blazebuster

Mortgage is Openplan from the Woolwich, tracks base rate + 0.75%. I am really looking to generate more income. I estimate uni will cost around £1000 per month taking everything into account, i.e. tuition fees, living costs, etc.
You're right, i do get a better return on my investments than i'm paying on the mortgage, but its not money in my pocket.

jamesd

Assuming that you are willing to use the 45000 and ignoring growth it's capable of delivering 1250 a month for 36 months. So it's doable if you're willing to spend much of that capital.

Assuming that the children will not be tax payers at university you could split the money evenly between them and invest in Zopa's 3 year C market, which can deliver a return of 10-11%, paying a monthly income as the capital is repaid plus interest. It would take some months to get the money lent out but that would provide the income stream desired. The interest is taxable so it's still OK for a tax payer, just less efficient.

Annuities are also available for this purpose and you could purchase one for each child to directly deliver them the desired income stream.

The buy property and rent rooms out is also a useful option to decrease the costs. It's likely to be significantly more efficient, since the other residents will end up covering the costs if all goes well. This could substantially reduce your loss of capital and might even make a profit.