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Cash everything in and pay mortgage off?
Comments
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Cheers again everyone for your comments. I thought it worthwhile just emphasising a couple of points.
First, as I know you have recognised, most of my money is invested in the stock market in a tax free wrapping. Very little is in savings account, either taxed or tax free, therefore the issue of balancing returns against interest charges is of little relevance. My Fidelity 1998 PEP for example has grown by well over 100% for example! I guess the crux of my question here was "when do you decide to make use of it?"
Secondly, I only have £1.8K in premium bonds, which aren’t going to make a significant dent in the mortgage and to be honest; they are just sitting there in readiness to pay my holiday bill for next year. (I thought I’d just see if I got lucky with them while I wait til the bill is due.). I only pitched them in to my question because I know that I have £2-3K commission due to me over the next couple of months. The other thing I didn’t mention is that I have £3K in a Nat Savings Guaranteed Bond, due to mature in 2008 and which I expect may be worth around £5K.
Harsh though it may sound, but to echo a bit of what Impomdasp said, some of my relatives are not as young as they used to be and when the time comes I would like to think I would use any money I get from them to buy some tangible things to remember them by, rather than using the money to clear a debt, even though I get a house out of it! (If you see what I mean?)
My dilemmas were:- Do I pay my mortgage off now, knowing that I have money earmarked to come in which could replace some of what I use now.
- Do I wait until next year when the Bonds matures, or
- Do I do something different?
The vibe I am getting now is to see if I could use the £42K currently being looked after in a very passive way by Fidelity to work a little harder and hopefully earn enough to fund my £500 per month mortgage, without actually blowing all the capital. I had never considered that option, but it is starting to sound quite sensible.0 -
By having a good long term objective you can then plan the best action to take. For most people this will be the retirement plan which is more than just paying of the mortgage
A good goal is to have some date in the future as a target
No mortgage
Savings pot protected from tax.
A good idea of where your alternative income will come from when you retire.
The important ones to plan for are the savings pot protected from tax since there are limits to how much you can put into a ISA and pensions have a lot of restrictions.
The problem you can get if you cash it all in is that you end up with more than the ISA allowance to stash away each year so it may be better to do a ballanced approach.
The other thing a lot of people forget is the TAX free lump sum from pension schemes, this may be tax free but as an investment it will be subject to tax, so it may be better to MAX out the ISA in previous years and pay of the last of the Mortgage with the lump sum. Also the income from the pension will be taxed where as income from an ISA is not so for basic rate taxpayers the benifits of pension wrappers are marginal except when an employer is making contributions as well.
Having no morgage is a great feelling but if it means paying more tax in the future it may not be the right thing to do now
The other thing most peole dont do is start to "invest in learning" about investing to make the savings/investments work a lot harder for them and understand what the costs are for these trackers and pensions these charges eat into the returns. IFA will have an agenda so learn some stuff and you can do better.
Remember to retire on £20k your "pot" will be worth about 1/2million so a % here and there in charges makes a big difference in those last few years.
The other nasty thing with maxing out pensions is that you are subject to restrictions on when you can draw an income and the capital will be lost so make use of the ISA as well, also learn about draw down it can be a better option than an anuity for money purchase pension schemes
If you have alot of money in cash ISA then you can use offset mortgage to keep the tax free status and be in the equivilant position to paying it off.
If the plan is to generate an income from investments and you are happy with stocks then have a look at the High Yield Portfolio it may be just what you are looking for and minimal costs if held in self select ISA's (google will find the place you need to be for this one) also good for a SIPP.0 -
Agg, if your investments are making more than your mortgage interest rate it wouldn't make sense to use them to pay off any of the mortgage. You'd just be losing the extra return and you couldn't make up for that immediate loss of capital later, because you'd lose several years of compounding effect.
What you might consider instead is staying invested but each year taking 50% of the after inflation growth in value of the investments and using that for the mortgage. Either by putting the money into lower risk investments or by actually taking the money out and paying it off the mortgage. This way you don't lose all of the compound growth on the capital but do do something with the mortgage.
Personally, I wouldn't be looking to use anything for the mortgage at this point because the investments are probably returning more than the mortgage interest rate, so paying off the mortgage is a money losing proposition.
For an alternative goal for the money, consider it to be your early retirement fund and look to invest the ISA maximum each year until you can retire.
Fulham_Mark, consider the Intelligent Finance or other mortgage that lets you offset with a cash ISA account. Then you could keep the ISA money and not pay the interest on the mortgage. Then put the saved interest in more ISA saving or investing.0
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