Pay off 50k tracker mortgage or invest?

confuddled79

Hello


I'm sure there a lot of these threads but every case is individual I guess, so I'm grateful of any general advice. Please speak slowly


50k mortgage left, 25 years left to run of a 30 year term (it was a fairly recent add-on), 2% above base rate, lifetime tracker, no early repayment penalties. Total interest left to pay over the term is approx 20k at todays rates. (Happy to calculate this roughly on current interest rates, and re-assess if it changes significantly).


We can afford to either pay it off now or invest the same amount long term over an equivalent period. We have nothing invested at all - no current ISA's etc. No debt apart from the mortgage The payments are covered safely with wages regardless so I'd be happy with a medium risk investment.


Thinking we could put 40k (married couple) into a couple of Stock ISA's now and 10k next year. Any recommendations? Pay in all at once or gradually?


Or knowing absolutely nothing about investing, and with the likelihood of wanting to invest more in years to come, are we better looking for a Wealth Management company to deal with it?


Thanks in advance...

Bravepants

How old are you?

Do you have pensions, either work (Defined Benefit or Defined Contribution) that you contribute to, or personal (SIPP)?

Do you have a cash emergency fund (say 6 months worth of outgoings or salary)?


My partner and I paid off our mortgage a couple of years ago when my partner moved in with me. It is a great feeling to be mortgage free and we did it for our security. No-one can take our roof away from us. But that was us, and how we felt. You might feel differently. For us it was another thing off the checklist!


Some would say that because mortgage rates are so low, you would be silly to pay off your mortgage when you can make on average 5% per year in a S&S ISA, using a mix of equities and bond index funds. But it depends on your overall goals in life, and your risk tolerance. You are not guaranteed 5% per year over the short term but that is a long term figure based on analysis of the last 200 years of stock market performance. Would you be OK with seeing say a 40% drop in your S&S ISA? Would you be tempted to sell out even though there is a good chance that the crash would recover in a year or two?


My partner and I have S&S ISAS and we plan to retire early. I'm 50 this year and plan to go at or about 55.


Some others would worry that equities are quite highly priced at the moment and so drip-feeding would be better than lump sum. I drip feed monthly, but my partner has just transferred £70000 to a S&S ISA with 10 years to go before retirement. So it all depends on your tolerance to risk, your plans for the future, your desired sense of accomplishment or comfort you would get from the deployment of your savings.


From my point of view paying off the mortgage gave us one less thing to worry about, and freed up the cash-flow to invest elsewhere monthly.


If you are new to investing then take a look at the Monevator website, and buy/lend a copy of Tim Hales book "Smarter Investing". Check out things like L&G Multi-index funds, or Vanguard Lifestrategy funds.


It needn't be complicated for a starting investor, and we have managed so far without a Wealth Management company. perhaps as your stash increases with time you can begin to think about independent financial advisors etc. But just start investing with something simple, a index fund of funds with a mix of equities and bonds.

MallyGirl

Personally I would make sure you have the cash emergency fund and then invest the rest. You have plenty of time to weather a few storms. It is what I am doing.

confuddled79

We are both 35 with regular safe jobs inc pensions. We can afford for the family to live off either salary so there is no security risk even with mortgage payments. We have enough for a rainy day. The 50k is a result of a one-off situation and not 'needed' day to day.


I'm not particularly emotional about having OR clearing a mortgage so it is really a case of which is likely to perform better / cost less over a 20 year period whilst obviously riding out any storms. I'd like to do something with it all straight away ideally as it's festering every month it spends in a non-interest earning account.


If they are likely to come out equal in the long term I'd pay off the mortgage for simplicity & less risk. Similarly if having an actively managed fund would give greater gains than 5% I'd be tempted to look at that. What reading I have done has given me the overall impression that now is not the ideal time to be investing in the market, but then again that's what people told me 15 years ago when I bought the house!


Thanks...

movilogo

Can you invest the amount somewhere to get better % return against what you are paying for your mortgage?

If answer is yes, then invest there otherwise payoff mortgage.

kidmugsy

I'd be inclined to look at advantages at the margin. For instance, could either of you avoid 40% income tax by making bigger pension contributions? Does either of you get to use Salary Sacrifice? Are you both contributing enough to garner maximum employer contribution?

If you're under 40 why not open a LISA? You can keep contributing until you are 50 and withdraw the money without tax and without penalty at 60. Before then you can withdraw money without tax but with a penalty, so that sort of withdrawal would be for emergencies only. For two of you, two LISAs can absorb £8k per tax year, so £16k in the next three months. Meantime the rest of the cash could be tucked into (say) Premium Bonds.

If, however, your mortgage is one of those flexible ones where you can overpay and then borrow the money back again when you want to, overpaying in part now would probably be a better bet than Premium Bonds.

Eco_Miser

Don't use a Wealth Manager - they're for very much larger amounts. Maybe use an Independent Financial Adviser (IFA) if after reading around you don't feel confident, but £50k is still a small amount and the charges will be relatively higher.
Actively managed funds may or may not do better than passive funds, or paying off your mortgage.

If you've got the money, then investing it all at once is statistically better than drip feeding.

TheLastMongoose

The numbers say go with investing but it's not that simple. There is a learning curve with investing and it's possible (but entirely avoidable) to make costly mistakes. It can also be emotional.

I would suggest that the amount you are talking about is a lot to you and investing it all might not be the best idea if you haven't already had some practice. Having said that, I do think you should definitely invest some as you are missing a trick by not having any investments, but I would never advise somebody to invest such a large some of money as their first venture in to investing. Investing can be stressful if you are that way inclined so I would start with a sum that isn't going to worry you whatever happens.

In spite of all that I would agree that you don't need somebody to manage it for you. It's really not that hard to do it yourself.

Personally, I overpay my mortgage by a regular amount every month and invest what's left. I like having my eggs in multiple baskets. Investing has the chance of greater returns but overpaying mortgage is always a winner because...who doesn't want to be mortgage free!?