Do I pay off the mortgage or invest the sum into funds?

username12345678

I cleared my mortgage earlier this month after over-paying for a few years.

I have no doubt it wasn't the financially 'optimal' decision but the idea of being mortgage free before 45 had a value to me beyond the thought of the potential returns investing the excess cash could have given me.

Of course, you could argue that those very returns would have enabled me to pay off the mortgage even more quickly but I wouldn't have know that.

justme111

houmie wrote: »

Hello everyone,


I could only get 25% of it at 58, and rest comes in only as monthly cash out I believe. Doesn't seem very attractive to me. Maybe I'm

Yes you are overlooking an option of drawing down your pension without taking an annuity. Will not be tax free though. If no space in an ISA there is an option of investment anyway with paying tax on returns from it. But it makes mortgage paying option more attractive.

cashbackproblems

A single person with such a large mortgage is risky in case of job loss etc. So I would have a safety buffer either in shares/cash in case of the unexpected

houmie

Thanks everyone for the kind replies.

Indeed it has a psychological benefit paying off the mortgage sooner. I was supposed to move in last year with my fiancee. Unfortunately, we broke up before it happened, so I moved in by myself into an empty three bed flat. The service charge is also quite high. Plus bills and ground rent, it's a bit worrying. I'm lucky to have such a good salary to handle it for now by myself.

There is always the opportunity of renting out a room on Airbnb for 5 days a month to make a decent amount. Has any experience with that?

Around half a year ago there was an exceptionally low mortgage offer for 60% LTV. Maybe I should aim to put £13K into the mortgage to reduce the LTV to 60% and put the rest into tracker funds.

It's a tough decision though. Especially since I have maxed the ISA already, investing anything into funds is subject to the capital gain tax of 20%. (Unsure if the tax is only due when I sell the funds?)

This kind of dwarfs the benefit though...doesn't it?

Thrugelmir

houmie wrote: »

Indeed it has a psychological benefit paying off the mortgage sooner. I was supposed to move in last year with my fiancee. Unfortunately, we broke up before it happened, so I moved in by myself into an empty three bed flat. The service charge is also quite high. Plus bills and ground rent, it's a bit worrying. I'm lucky to have such a good salary to handle it for now by myself.

Perhaps use the £50k windfall to move to somewhere more "suitable". As the property itself doesn't appear to offer a good long term return.

bigadaj

houmie wrote: »

Thanks everyone for the kind replies.

Indeed it has a psychological benefit paying off the mortgage sooner. I was supposed to move in last year with my fiancee. Unfortunately, we broke up before it happened, so I moved in by myself into an empty three bed flat. The service charge is also quite high. Plus bills and ground rent, it's a bit worrying. I'm lucky to have such a good salary to handle it for now by myself.

There is always the opportunity of renting out a room on Airbnb for 5 days a month to make a decent amount. Has any experience with that?

Around half a year ago there was an exceptionally low mortgage offer for 60% LTV. Maybe I should aim to put £13K into the mortgage to reduce the LTV to 60% and put the rest into tracker funds.

It's a tough decision though. Especially since I have maxed the ISA already, investing anything into funds is subject to the capital gain tax of 20%. (Unsure if the tax is only due when I sell the funds?)

This kind of dwarfs the benefit though...doesn't it?

Isas are tax exempt, including cgt.

If your salary is high enough to service that mortgage it suggests that pension contributions would be very efficient. An immediate uplift if 40%, or potentially 45%, or even 60% for a certain band, obviously beats any other form of investment option.

justme111

Very sensible re lowering LTV to 60% if the money you have will allow for it (sorry haven't done the maths). Lowering it further does not give any further advantage re interest rates I believe.
That's a shame that you have bought something you are not that happy with at that price. When one thinks of all the transaction costs of buying and selling one sees how much moving often sucks out of their finances over lifetime.
Re 20% tax on investments- you appear to be a higher rate taxpayer so I believe it would be not 20 but 40%. Still- 60% of 5% ( average growth rate of investments, I stand to be corrected on the number as I know it from hearsay) is larger than 100% of 1.24%.
But as previous posters say it highlights again how much better option pension is. Why would you need to get that money sooner than 58? You are unlikely to retire before 58 and even if you do you will have an option to use your ISA /downsize money to fund you in the years before 58.

DiggerUK

Securing the roof over your head means you can face anything to come. It's only greed that will make you invest more, not wisdom.

Your cash flow will improve, and can be put towards more repayments if you wish. Make clearing your mortgage the highest priority.

You have more than enough easily available liquidity to act as a buffer, how about a treat for yourself......all work..._