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Using lump sum to pay off mortgage?

DT1989
Posts: 4 Newbie
Hi I am new to this forum but have been reading lots of the posts about this issue.
I am approaching 55 years old and will draw my full pension (NHS Special Class) in November of 17k pa and LS 50k. Thereafter my income will be 40k pa (17k + 23k PT) abatement considered. I have a repayment mortgage of 50k outstanding for next 11 years and capital savings of 30k. Total income with spouse equals 65k.
Option 1: Use LS to clear mortgage and invest the other 30k
Option 2: Invest LS and capital (total 80k) and draw returns to cover mortgage until term.
Which of these options is best?
I am approaching 55 years old and will draw my full pension (NHS Special Class) in November of 17k pa and LS 50k. Thereafter my income will be 40k pa (17k + 23k PT) abatement considered. I have a repayment mortgage of 50k outstanding for next 11 years and capital savings of 30k. Total income with spouse equals 65k.
Option 1: Use LS to clear mortgage and invest the other 30k
Option 2: Invest LS and capital (total 80k) and draw returns to cover mortgage until term.
Which of these options is best?
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Comments
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I would prefer to be debt-free.0
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I would prefer to know the rate of your mtg.
If like mine it is near 1%, then I would invest the money. Or something half way (ie reduce the mtg, and invest the rest). If your rate is high, pay it off or get a lower rate.0 -
I felt no great relief on paying off our mortgage. But I did feel some relief when we got to the state where we could pay off the mortgage if whim so dictated.
Why not (1) tell us the interest rate on your mortgage, as atush suggests, and (ii) anyway wait until November to make your decision: by then it may be clear whether the stock market is much better value, for instance.
Two other points. (a) Is there an option for you to forgo the lump sum and take a bigger pension instead? (b) Is there an option to defer taking the pension at 55 and get a bigger pension later as a reward? Would either option appeal to you (if available)?Free the dunston one next time too.0 -
Hi, thanks for your replies. My mortgage interest rate is 2.89% variable. This mortgage has no tie ins, or early redemption penalties.0
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And points a and b?
Taking a lower LS and a higher pension is generally a great idea. As is deferring, if there is a benefit in doing so.0 -
Points a and b are not options0
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So do you think you can get better performance/income than 2.89%? I would suggest you could.
Esp if you intended to hold the investments for a longer period as income could (if you choose income paying investments) remain stable even if there was market volatility causing fluctuations in fund value.
Some investment trusts have multi decade records of increasing dividends year on year.0 -
The historic average return of the UK stock market has been about 5% plus inflation. That is far in excess of a 2.89% mortgage rate. For your purpose you would not be best sticking with only UK investments, nor only with equities/shares. Some use of property funds and bond funds would also be appropriate as well.
For now, while interest rates remain low, it doesn't seem that the option that is most likely to be best is to pay off the mortgage.
The potential catch is variability. Investment values go up and down. The amount owed on the mortgage doesn't. Interest rates on both investments and Bank Rate linked mortgages are likely to go up. A key consideration for you is whether you could handle say a 20% drop in the value of your investments over a few weeks during a routine market drop. Could you? You can adjust the mixture of investments to adjust how big such drops may be but except by going fully into cash you can't eliminate them.0 -
So do you think you can get better performance/income than 2.89%? I would suggest you could.
Esp if you intended to hold the investments for a longer period as income could (if you choose income paying investments) remain stable even if there was market volatility causing fluctuations in fund value.
Some investment trusts have multi decade records of increasing dividends year on year.
Why are you talking someone in to taking such a risk?
Surely one should be debt-free ASAP. Peace of mind and the ability to retire early.
What happens if the investments fall below the required amount to pay off the mortgage.
If £30k isn't enough to play around with on the stock market (other investments are available!), you can always put some more by each month (now that you'll have no mortgage to pay off)0 -
A regulated IFA is not permitted to speculate on investment growth as a justification for investment.0
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