What to do with spare pennies?

Tropically

£80,000 x 3.74% x 24 years = £71,808 paid in interest on mortgage. Adding in the capital cost of the kitchen and you will have effectively paid £151,808 for the extension. Will your extension add that much onto your property value?

Tropically

I have done the math on how you are choosing to allocate your money, and the sub-optimal system you have going on right now is costing you £12,500 per year.

I assumed that you would save the £80,000 lump sum at 0.09% a year and that you were 40 years old.
I used a rule of thumb that your percentage of stocks should be (100-your age)/100 in stocks.
I applied all £80,000 lump sum to the mortgage, remortgaged to repayment at 1.65%. I saved £31,2000 in a cash ISA at 3% and saved £46,800 in a Stocks and Shares ISA at an average rate of 10.2%. Your monthly payment remains the same at around £1300 pcm. I would make a net £595 in interest per year versus what you are currently doing which is paying £13,164 in interest a year. All I have done is reallocate your current money into a more optimal system. You still have an 8 month emergency fund in cash.

AnotherJoe

Some of those numbers are based on fantasy.
You cannot get 3% in a cash ISA, and you would be hugely overoptimistic (and over precise!) to get 10.2%.

Would be interesting to see them reworked to 1% and 4% respectively.

But even without shares, if the OP simply lowered their mortgage rate by 2% by going to repayment at better LTV and reducing the total amount of interest paid over 24 years, I make it close to £100k saved and thats before the effect of paying off a good chunk with ISA and £80k.
So make that £150k which tallies with post 12 and is completely risk free, no investments needed.

TallulahBelly14

Ooohhh I can't thank you all enough - this is the depth of analysis that I couldn't dream of coming up with by myself. I understand it all conceptually of course, but struggle with the fine detail. I feel like a huge weight has been lifted, as I now know what I need to do next.

So the consensus is that we don't need as much saved up in cash ISAs as we do. I don't know where it came from but I've always had an invisible rule in my head that I should never withdraw money from my ISA as it'd be harder to build up that much again tax-free, but in my situation I can definitely see why that rule should be broken.

I have lots of phone calls to make in the morning - thanks again, all!

TallulahBelly14

melanzana wrote: »

Do you absolutely, definitely, without any doubt WHATSOEVER need to live in London?

If you sold and bought something within commutable distance, would that ever be an option for you?

Would reduce the mortgage, and you could keep the cash for other things maybe.

But I am only throwing it out. I am sure you have your reasons for staying where you are.

It's a good point - we've talked about it and agreed we should consider it, but are suffering from inertia, I admit. For now, both the kids are settled in a really good school that's just round the corner, so that has stopped us from thinking about it too seriously. Perhaps it'll make sense for secondary...

TallulahBelly14

elsien wrote: »

No, they're looking at the loan to value ratio. You don't need to borrow more to remortgage.

Of course. That makes SO much more sense than my previous assumption.:doh:

Thank you.

AnotherJoe

TallulahBelly14 wrote: »

Ooohhh I can't thank you all enough - this is the depth of analysis that I couldn't dream of coming up with by myself. I understand it all conceptually of course, but struggle with the fine detail. I feel like a huge weight has been lifted, as I now know what I need to do next.

So the consensus is that we don't need as much saved up in cash ISAs as we do. I don't know where it came from but I've always had an invisible rule in my head that I should never withdraw money from my ISA as it'd be harder to build up that much again tax-free, but in my situation I can definitely see why that rule should be broken.

I have lots of phone calls to make in the morning - thanks again, all!

Look at it this way, you are getting much more, also tax free, by paying off part of your 3.74% (!!!) mortgage with some of that tax free money, and even when reduced to a sensible rate, maybe 1.5%?, much more than you would be getting on your ISA at around 1%. That tax free saving probably doubles when you change to repayment.

gallygirl

The benefit of an ISA was that you got all growth tax free. You only have cash ISA's, which will not grow as well as S&S ISA's. You now get the first 1k of interest outside an ISA tax free (2k for a couple) so you need 200k in savings to get the benefit at 1% interest.

I would not rely on property prices rising to pay off your mortgage - over a 24 year time scale yes they no doubt will. But as others have pointed out, you'll be paying a fortune in interest (aka rent basically).

Don't let 'the norm' of London property prices persuade you it's ok to carry such a massive debt.

Tropically

AnotherJoe wrote: »

Some of those numbers are based on fantasy.
You cannot get 3% in a cash ISA, and you would be hugely overoptimistic (and over precise!) to get 10.2%.

Would be interesting to see them reworked to 1% and 4% respectively.

But even without shares, if the OP simply lowered their mortgage rate by 2% by going to repayment at better LTV and reducing the total amount of interest paid over 24 years, I make it close to £100k saved and thats before the effect of paying off a good chunk with ISA and £80k.
So make that £150k which tallies with post 12 and is completely risk free, no investments needed.

I did a bit more research and you're right about the 3%. I thought that was the going rate but I see now that you could get that if you had a complicated system of 3% regular savers. It would be sub-optimal to withdraw money from the ISA and put it into a regular saver.

I arrived at 10.2% because that is the average return of the FTSE 250 over the last 10 years. I don't want to get into investment advice on here because I know that this forum is very fiscally conservative but the OP has loads of money which is not performing as well as it could. I just checked my stocks and shares investment for this year and in the last year they have gone up 6.67%, 10%, 25%, and 32% for each of the funds I have. Obvs the 32% was the riskiest and not a large portion of my holdings, but 10.2% is not a fantasy.

The OP can pay off a large chunk of the mortgage, remortgage to repayment and better rate (I have 1.75% on a monstrous London mortgage for a house worth much less than OP's), get a better rate for the emergency fund (1% seems reasonable now) and then put the rest in a Stocks and Shares ISA according to their desired risk profile.

AnotherJoe

Tropically wrote: »

I did a bit more research and you're right about the 3%. I thought that was the going rate but I see now that you could get that if you had a complicated system of 3% regular savers. It would be sub-optimal to withdraw money from the ISA and put it into a regular saver.

I arrived at 10.2% because that is the average return of the FTSE 250 over the last 10 years. Past performance is no guide to the future. Literally. But fair enough, I didn't know that. That would however be a bold move post Brexit, to put all your funds in that.

I don't want to get into investment advice on here because I know that this forum is very fiscally conservative but the OP has loads of money which is not performing as well as it could. Agreed.

I just checked my stocks and shares investment for this year and in the last year they have gone up 6.67%, 10%, 25%, and 32% for each of the funds I have. Obvs the 32% was the riskiest and not a large portion of my holdings, but 10.2% is not a fantasy. Sure, but in another year you could have put a minus sign in front of those figures which soem coudl cope with I suspect not the OP though..

The OP can pay off a large chunk of the mortgage, remortgage to repayment and better rate (I have 1.75% on a monstrous London mortgage for a house worth much less than OP's), get a better rate for the emergency fund (1% seems reasonable now) and then put the rest in a Stocks and Shares ISA according to their desired risk profile.

Agreed apart from the S&S ISA, since i think someone with £78k in a cash ISA appears to have zero appetite for investing I am high risk investor compared to most but OP seems to be someone with no wish to get into this.

And as you and others have identified OP can get excellent, zero risk payback simply by remortgaging, going to repayment from IO, and using a fair chunk of the cash ISA & windfall to reduce the mortgage size/duration.