Burning hole in my pockets

anonmoose

Is there ever an argument to pay off the mortgage with a big lump sum?

We have a sum of around £130k which was an inheritance and we were going to use for an extension but have decided against it as we only see ourselves staying here 5 - 10yrs.  

My pension needs some attention so the first thing I will do is put in my max contributions for next few years.  This still leaves us with a 100k pot that obviously I don't want to leave in cash.  My partners pension is on track and gets full employee allowance which is minimum allowed.

I was considering setting up 2 x s&s isa (me & partner) as we would get £80k away if we get in this tax yr and next.  But I do think we are pretty much at the top of the market so I don't think its the best time to be putting so much into trackers/funds.  Or would this option be the best of a bad lot??

We currently pay 1.8% on our mortgage which is due renewal in a year.  Rates will probably rise but who knows how much..  We could throw the money in instead of possibly higher mortgage.

Another option was to buy a small buy to let but I am nervous about the direction of taxing for landlords.  Also capital gains on selling to consider. And add to the fact I don't think prices will be increasing much so not the incentive from that point of view.

In terms of access to the cash I am probably looking at 8 - 10yrs.  In the case of paying the mortgage we would downsize and release some equity then.  In the case of shares we would probably want to access the money.  If we did buy to let we would keep it long term.

Anyway what would you smart people do?

ChilliBob

I'd avoid BTL, hassle and not as lucrative as it once was. 

With rates rising and returns expected to be dampened I think I'd be tempted to pay off at least some of the mortgage, especially as the only way interest rates are going is up.

Essentially not doing this and keeping on with the mortgage is leveraged investing really. Basically losses and gains see apliified really.

anonmoose

Thanks Chilli, that is my inclination at the moment. 

Then we could use the monthly money we would usually spend on the mortgage to feed into a S&S Isa.

I guess the only thing is if there was a big dip in the stock markets then I wouldn't be able to take advantage of it apart from the drip feed.

Interested to hear others thoughts.

Shankers

anonmoose said:

Is there ever an argument to pay off the mortgage with a big lump sum?

We have a sum of around £130k which was an inheritance and we were going to use for an extension but have decided against it as we only see ourselves staying here 5 - 10yrs.  

My pension needs some attention so the first thing I will do is put in my max contributions for next few years.  This still leaves us with a 100k pot that obviously I don't want to leave in cash.  My partners pension is on track and gets full employee allowance which is minimum allowed.

I was considering setting up 2 x s&s isa (me & partner) as we would get £80k away if we get in this tax yr and next.  But I do think we are pretty much at the top of the market so I don't think its the best time to be putting so much into trackers/funds.  Or would this option be the best of a bad lot??

We currently pay 1.8% on our mortgage which is due renewal in a year.  Rates will probably rise but who knows how much..  We could throw the money in instead of possibly higher mortgage.

Another option was to buy a small buy to let but I am nervous about the direction of taxing for landlords.  Also capital gains on selling to consider. And add to the fact I don't think prices will be increasing much so not the incentive from that point of view.

In terms of access to the cash I am probably looking at 8 - 10yrs.  In the case of paying the mortgage we would downsize and release some equity then.  In the case of shares we would probably want to access the money.  If we did buy to let we would keep it long term.

Anyway what would you smart people do?

Avoid BtL

You mention an extension, but what about another, less costly home improvement such as an attic conversion, garden office, or conservatory? That might be 40k, then 20k in a S&S ISA, then 30k to overpay the mortgage, then 10k to simply enjoy yourselves with a holiday and some other nice bits and bobs. That way you're improving your home, reducing your mortgage, investing (which you can hopefully just leave there) and feeling like the money has brought you some joy, too (which you'll also get from your home improvement; 5-10 years is a long time and it'd be nice to have the extra space and it should add some value to your home, too).

anonmoose

A garden office was a possibility before we decided on the bigger extension so it is probably worth reviewing it.  I do like the idea of doing a little of everything.  I guess because it's inheritance it just feels extra important to spend/invest wisely.

We did consider a holiday home abroad but that is probably the least wise option

Shankers

anonmoose said:

A garden office was a possibility before we decided on the bigger extension so it is probably worth reviewing it.  I do like the idea of doing a little of everything.  I guess because it's inheritance it just feels extra important to spend/invest wisely.

We did consider a holiday home abroad but that is probably the least wise option

Garden offices do look like good value when you consider the square footage per £. Less disruptive, too, as there wouldn't be the building work. Cheaper, which should leave you room to use the money in other ways.

Holiday home abroad is probably not the best option. I've known a few people lose quite a bit with property on the continent, and who knows whether pandemics become the 'norm' (I sincerely hope not); investing in space in and around your home is probably wisest given the last 2 years of restrictions on travel.

anonmoose

I just checked my mortgage renewal and its actually 15months until I can re-mortgage and before then the redemption penalties make it pointless overpaying (apart from 10% I can overpay).

So looking at a 15month timeframe what are the best savings options for that chunk of money as all the interest rates look very poor with inflation as it is.  Would premium bonds be worth a punt or any other better options?

Thrugelmir

anonmoose said:

Anyway what would you smart people do?

Decide what my priority objectives were. When money is burning a hole in the pocket. Making impulsive and hasty decisions could be extremely costly in the long term. There's no rush. Drip feed the money into various pots and take your time. 

tebbins

The worst that can happen by taking your time is missed opportunities and inflation reducing the value of your money.
The worst that can happen by rushing is losing all of it, unless you're especially incompetent and use CFDd to generate an even bigger loss.

anonmoose

Ok thanks for all the comments it has really helped.  I guess I expected people to say paying off the mortgage was a terrible idea but I guess that says a lot about the current economic position.

I have been wrestling with this for a while but suddenly I can see clearly what I want to do.  I will keep 30-40k for renovations plus holiday or small garden room.  Put 100k into the mortgage as soon as I can and then use the money from my regular mortgage payment to max out my sipp allowance.  So that will be £1k gross a month for the next 10 - 15 yrs.  That will double my pension pot and we can then take out the 25% tax free to either retire a bit earlier or have more ambitious travel plans.

Obviously my pension value could tank but I am flexible on my retirement date so not too worried.

Does that sound sensible?  And any ideas for decent rates on savings for the next 18months.

robaber

I will add my own two pence worth, for what it is worth. 

I would: 
1) ensure I have a decent emergency savings fund. 
2) ensure I had life insurance, income protection, critical illness. 
3)max out my pension contributions for me and partner

4) max out my and partners s&s ISA

5) overpay mortgage, within overpayment allowance.
6) if you are under 40, then open and max out a retirement savings LISA
7) earmark money for any other costs. 

Any other money, I would put into a 1 year fixed savings account. When the 1 year was up, I would repeat the above.