Should I pay off my mortgage with my savings? What would you do?

moneymark

Hi there,

Over the past 5 years or so I have managed to save up £300k and is currently doing very little earning about 1.75%

I have an interest only mortgage of £257k on a varible rate. I have decided I am going to fix this to a repayment at a lower rate and pay £50k off.

Big question is, would you pay do the same or pay more off? One half of me says I should the keep the savings for my future, the other tells me it would be better to have no mortgage! What would you do???

Thanks

MM

PS I'm 39 and self employed with no pension.

bigadaj

Many debates on here about this very stage, do a search and see others opinion.

Many people like paying off a mortgage for epsecurity and piece of mind, but objectively you are likely to be better off investing the. Only over the long term.

One thing for sure is that you'll lose money on that sum in cash over the longer term.

If you have no pension then I'd start one now, you can out in £50k or your earnings, whichever is lower and get tax relief on it. The same in the next tax year but the maximum reduces to £40k.

You can put in 23k ish into shares isas for this tax year and next, do some research on this on here and sites like monevator and motley fool and check back with your thoughts.

Waht is your mortgage rate currently, might be worth laying some off as well, you need to retain a cash fund for emergencies as well.

DigForVictory

Split the savings between a pension, the mortgage & a Just In Case fund. Get all the tax breaks you can on the pension, get the peace of mind of knowing your house is Much More paid for (and thus presently lower payments &/or even overpayments) and enjoy!

xylophone

I'm 39 and self employed with no pension.

In your position I'd get one!

https://www.moneyadviceservice.org.uk/en/articles/pensions-for-the-self-employed

http://www.cavendishonline.co.uk/pensions/

http://www.unbiased.co.uk/pensions

http://www.hmrc.gov.uk/incometax/relief-pension.htm

Re state pension https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/181237/single-tier-pension-fact-sheet.pdf

interest only mortgage of £257k

I'd reduce that by half and change to repayment immediately.

Make sure that you have an emergency fund, and then use your ISA Stocks and shares allowance?http://monevator.com/category/investing/ might be worth a browse?

planteria

well, if you really like the home you are in, and intend to stay there.. i think there is a good case for paying off the mortgage, keeping some money for 'a rainy day' and investing the rest..potentially starting your pension. then, each month, rather than paying your mortgage you can invest that sum, or more, into building your pension pot.

arguably, you would be better off, long-term, investing all of the money and continuing to invest & repay your mortgage every month from now on. but i can certainly an appeal in the simplicity of the former approach.

atush

What is that variable rate? Why 300K in cash?

First off, pension. Second, emergency fund in cash. Third S&S isas. Then think aobut lowering the mtg.

planteria

i see the logic in that too.



it is all about preferences.

bottom line is that making money and using it to either Increase Investment or Decrease Debt is taking you in the right direction.

whether to clear debt & then invest, or look to manage the two alongside one another, is always going to be a matter of personal choice.

on the basis that an annual ISA allowance disappears each year, but other investments remain available, perhaps each years priority ought to be: ISA>%DebtReduction>PensionContribution.

bristol_pilot

If you are a higher-rate taxpayer, I would get a pension started straight away. You can pay in £50k this tax year and £40k next tax year (which is in a couple of months time). Then I'd pay off half the mortgage and convert the rest to repayment. The remainder into S&S ISAs - max out this year's and next years allowances. The split between investing and paying down your mortgage depends on your attitude to risk and I have posted on another thread my opinion in favour of paying down my mortgage in preference, BUT I have my pension in place already. In your position I'd prioritise a pension first and foremost.