Pay Mortgage Off or Invest?

rothers

I currently have an endowment mortgage of £90k which is due to mature in April 2024, the endowment is forecasted to have a shortfall so it won’t cover the whole amount. I am due to receive £100k shortly and am considering paying the mortgage off now as the base rate is increasing quite quickly. Having said that my interest rate is only 0.17% above the base rate so I am in two minds. 

I am 50 years old and my wife is 51. I want to retire by the end of this year ideally as I have had enough of my job, with my pension and my wife’s wage we have enough to live on without me working but I will probably get something part time. My wife is happy for me to retire and her to continue to work as she enjoys her job. 

I have quite a bit in cash savings and am aware that keeping lots of cash isn’t a good idea but investing the £100k makes me slightly nervous in case something happens which prevents my wife working and we need it sooner than the ten year “safe” investment period.

I would be grateful for any opinions on what to do with the £100k. 

Many Thanks

El_Torro

It's difficult to know what the "right" thing to do is based on the limited information you have supplied. On the face of it though if you're retiring and you have enough income from other sources to see you through (what will hopefully be a long) retirement then paying off your mortgage does seem like a good idea. 

Don't forget that you should hold some cash, even though inflation is high and interest rates are relatively low. The cash should be held in case of house repairs, your wife losing her job, etc... I wouldn't spend all your available cash on paying off the mortgage.

One thing that puzzles me is you say that you can live off your pension but you're only 50 years old. How will you be able to access your pension at such a young age?

MX5huggy

Is the interest on the mortgage fixed till 2024 or some sort of tracker? If it’s fixed at 1.92% then you can get better than that in a fixed (or notice) savings account. 

rothers

El_Torro said:

It's difficult to know what the "right" thing to do is based on the limited information you have supplied. On the face of it though if you're retiring and you have enough income from other sources to see you through (what will hopefully be a long) retirement then paying off your mortgage does seem like a good idea. 

Don't forget that you should hold some cash, even though inflation is high and interest rates are relatively low. The cash should be held in case of house repairs, your wife losing her job, etc... I wouldn't spend all your available cash on paying off the mortgage.

One thing that puzzles me is you say that you can live off your pension but you're only 50 years old. How will you be able to access your pension at such a young age?

My pension is just over half of my final salary, index linked for life. Due to the rules of the scheme I can access it unreduced from the age of 50, I could increase my pension by staying on but I don’t really want to do that, especially as I have been moved to the care scheme on 1st April this year. 

I have about 18 months of current spend in cash and the spending could easily be reduced if my wife lost her job. Losing her job is unlikely though, she works in the NHS, it’s more if anything health related happens and she is unable to continue. I do wonder if I worry too much about unlikely things like that happening

rothers

MX5huggy said:

Is the interest on the mortgage fixed till 2024 or some sort of tracker? If it’s fixed at 1.92% then you can get better than that in a fixed (or notice) savings account. 

It isn’t fixed, it is a lifetime tracker at 0.17% above the base rate

Exodi

rothers said:

investing the £100k makes me slightly nervous in case something happens 

I think this speaks volumes.

Many saw their investments dip by double digit amounts at the start of this year. Would you be able to sit idly by if you saw you had made a loss on paper of ~£20k or would you be tempted to cash in your investment before you 'lose even more'?

If the latter it's probably not a good idea to invest. My work colleague did the classic 'novice investor' stunt this year - dropped £20k on the S&P 500 in January, was constantly checking his investment every hour, started to read horror articles in the summer about market corrections, then ended up liquidating his portfolio realising a loss of about £2k.

He exhibited the classic errors that people make - he invested at the peak of the market (when all the news articles were singing about the eye-watering returns of the year before), then immediately caved to FUD (when all the news articles were all doom and gloom). In reality, the best returns would have been achieved by investing the other way round. He shouldn't have invested if he wasn't committed to the long haul.

As you shouldn't if you aren't either.

rothers

Exodi said:

"rothers said:

investing the £100k makes me slightly nervous in case something happens 

I think this speaks volumes.

Many saw their investments dip by double digit amounts at the start of this year. Would you be able to sit idly by if you saw you had made a loss on paper of ~£20k or would you be tempted to cash in your investment before you 'lose even more'?

If the latter it's probably not a good idea to invest. My work colleague did the classic 'novice investor' stunt this year - dropped £20k on the S&P 500 in January, was constantly checking his investment every hour, started to read horror articles in the summer about market corrections, then ended up liquidating his portfolio realising a loss of about £2k.

He exhibited the classic errors that people make - he invested at the peak of the market (when all the news articles were singing about the eye-watering returns of the year before), then immediately caved to FUD (when all the news articles were all doom and gloom). In reality, the best returns would have been achieved by investing the other way round. He shouldn't have invested if he wasn't committed to the long haul.

As you shouldn't if you aren't either.

I’ve already got investments that went down by around £8k earlier this year, that doesn’t bother me as I am in it for the long haul. You cut part of my sentence after the word “happens”, I was talking about if something happened to prevent my wife from working, not if something happened to the market ie it fell. If anything I would be too stubborn and leave the investment in no matter what. I got slightly stung with the Woodford issue by hanging on in there. Luckily I wasn’t deep into it though. 

MX5huggy

rothers said:

MX5huggy said:

Is the interest on the mortgage fixed till 2024 or some sort of tracker? If it’s fixed at 1.92% then you can get better than that in a fixed (or notice) savings account. 

It isn’t fixed, it is a lifetime tracker at 0.17% above the base rate

You’ll probably be able to scrape a little more in savings than the interest charged but it would take work to keep chasing the best rates. I would be paying it off for the simple life. 

Look up NHS pension ill heath retirement for some comfort, although you probably have to be more ill than you would want to be to get it. 

Albermarle

You could consider investing part of the £100K via a pension. In this way you get the benefit of some tax relief. If you are a basic rate taxpayer today and you will be a basic rate taxpayer when you take the pension, then you get a 6.25% tax advantage . A kind of head start over investing outside a pension. If you are a 40% taxpayer today then the tax advantage is much greater.
Although you could take the money in 7 years, you could also leave it longer.
If you did go down this route, you would need to do it in this tax year, as tax relief available is restricted by how much you earn.

jimjames

rothers said:

I have quite a bit in cash savings and am aware that keeping lots of cash isn’t a good idea but investing the £100k makes me slightly nervous in case something happens which prevents my wife working and we need it sooner than the ten year “safe” investment period.

There's nothing that stops you accessing an investment at any point after making it. It's just the chance of it being lower decreases over time. So I wouldn't worry about investing it just because you might need it. Markets have dropped this year so are now lower than if you'd invested in January.

guli

rothers said:

MX5huggy said:

Is the interest on the mortgage fixed till 2024 or some sort of tracker? If it’s fixed at 1.92% then you can get better than that in a fixed (or notice) savings account. 

It isn’t fixed, it is a lifetime tracker at 0.17% above the base rate

No need to pay off - the top instant access accounts pay interest at 1.9%, this can be your offset account for liquidity purposes if you're disciplined enough.