What do you do with 250K (Fund generated from remortgage)

IamWood

Dear All,

The original post was in https://forums.moneysavingexpert.com/discussion/comment/78895178#Comment_78895178

I'm creating a new post because it's more about investment.

I just re-mortgaged my current home, which is owned outright by me. My original plan was to use the funds to purchase a flat in Reading. However, I'm not sure I'll go ahead with the purchase at the moment. In the event that I withdraw my purchase, how should I do with the fund, 250K.

I can put 10K in my wife's SIPP and 10K in her ISA, however, my pension and ISA allowance for 2021-2022 was already exhausted.

The mortgage is a 5-year fixed deal with an interest rate 1.54%.

What can I do with the remaining funds? Or I better reject the mortgage offer altogether.

All comments and suggestions are welcome.

Thank you!

Thrugelmir

Personally I wouldn't leverage up with debt to invest without a plan in place. 

Linton

It all depends on what you will want the £250K for and when.
 - If you may buy a flat in a year or 2's time best to leave it as cash, perhaps in an NS&I account where it will be 100% guaranteed.  The interest rates will be minimal but at least you will have about £250K still there in 1-2 years time.
- If you dont actually need the money you could consider repaying the mortgage asap after any fixed term period has elapased.  Or you could give it away as an early inheritance.
 - you could use it to finance the early retirement mentioned in your previous posrting.  In which case perhaps leave half the money in cash.
 - If you really want to keep it for the long term you could set up an unsheltered  GIA (General Investment Account) and drip feed the money into S&S ISAs and pensions each year.  A bit more hassle and cost dealing with tax, but you would still be making significant returns after the tax has been paid.

enthusiasticsaver

Are you able to reject the mortgage or is there a penalty? I am with Thrugelmir and wouldn’t borrow to invest. 

Albermarle

I can put 10K in my wife's SIPP and 10K in her ISA,

Why only £10K in each ? Has she already put £10K in an ISA this tax year? Is her salary only £10K ?

Alexland

What rate will they be offering after the 5 years? How would you feel if it was 4%+ and the investments you made were worth less than you paid?

steampowered

What do you mean when you say your pension allowance has been exhausted - Have you already put £40k into your pension this year? 

Absent a more tax efficient option, you could just open a bog standard stocks & shares account. Statistically that is very likely to outperform a mortgage at a 1.54% rate and generate significant profit, even if you do end up having to pay some income tax on the dividends or CGT on sale profits.

IamWood

Albermarle said:

I can put 10K in my wife's SIPP and 10K in her ISA,

Why only £10K in each ? Has she already put £10K in an ISA this tax year? Is her salary only £10K ?

Yes, She's already contributed £10K on her ISA account for the tax year 2021-2022. After maximizing her work pension contribution she is already at minimum wage for this year.

steampowered said:

What do you mean when you say your pension allowance has been exhausted - Have you already put £40k into your pension this year? 

Absent a more tax efficient option, you could just open a bog standard stocks & shares account. Statistically that is very likely to outperform a mortgage at a 1.54% rate and generate significant profit, even if you do end up having to pay some income tax on the dividends or CGT on sale profits.

Yes, I've already put £40K through my work pension, and also contributed £20K to my ISA account.

To put things in more perspective, I'll be working in London from Feb 2022, with an income of at least £160K.

IamWood

enthusiasticsaver said:

Are you able to reject the mortgage or is there a penalty? I am with Thrugelmir and wouldn’t borrow to invest. 

I was of the same mind before. It's also why I paid off my mortgage in the first place (mistake?).

I can of course reject the mortgage offer, but I wonder if I am wasting another good opportunity from an investment perspective. The mortgage is a 5-year fixed deal with an interest rate of 1.54%.

Thrugelmir

IamWood said:

enthusiasticsaver said:

Are you able to reject the mortgage or is there a penalty? I am with Thrugelmir and wouldn’t borrow to invest. 

I was of the same mind before. It's also why I paid off my mortgage in the first place (mistake?).

When investing never fall into the trap of using hindsight. If you can now afford to risk your capital. Choose more adventurous investments gpong forward. You might get it right you might not.  Like playing musical chairs, when the music does stop some investors will always lose out. 

AlwaysLearnin

To be honest, although it's not normally a popular suggestion on these boards, I think perhaps from your position/worth/income/assets and questions (reading the other thread too), you might actually be someone that would benefit from the services of a good IFA.