Early Retirement

Monita56

Hi, can anyone help please? I have taken early retirement and can't work out whether it would be better to use my money (£110,000 - a mix of savings and lump sum) to pay off my mortgage or whether to invest it and keep the mortgage running. My current mortgage has a fixed rate of 1.92% until the end of May '24, and I could either look at investing my money and continue to just pay the mortgage at £704.62 per month, or pay a 20% lump sum (£16,537.92) without penalties and save the rest, which would reduce the payments to £557.65, or pay an ERC of nearly £600 to clear the whole balance (approx £79,000), as I don't know what my future mortgage payments will be once my fixed rate ends! I can't seem to find any way of saving my money where I would receive enough to cover the mortgage payments through interest only, and there's also tax on my savings to consider, so I'm struggling to do the Maths and feel that paying the mortgage off in full and then putting £20,000 in a fixed rate ISA, is possibly the best option? TIA.

molerat

You are currently paying around £1580 interest per year on that £79K.  You could get £4763 (taxable) interest at 6.03%, paid out monthly, on £79K in a NS&I 1 year Income bond.  You could get 5.6% on a 1 year ISA paying out monthly. A bit of mix and match could be the best option which could bring your effective "out of your own pocket" mortgage payment down around £375. I see little point in paying anything off the mortgage at the moment, especially anything that incurs a penalty.  You can re-assess the situation when your fix is coming to an end, that £79K will still be in the bank.

Roger175

You are currently paying far less in interest than you can get by putting your money on deposit. I would therefore suggest you put your savings into a deposit account until May 2024. (I wouldn't suggest going for a 1 year fix, NS&I for instance as you won't be able to access your money until Oct 24) I would look for the best instant access account which should earn you just over 5% and then consider paying off the mortgage once the current fix term ends in May. There is no point in paying the early redemption change and paying off a mortgage which is at a lower APR than you can otherwise earn in a savings account.

Albermarle

and there's also tax on my savings to consider,

It is often said on this forum, do not let worry about paying more tax push you into making the wrong financial decision overall.

In any case if you have a low income, you can earn a lot of interest before paying tax.

Tax-free savings: check if you're eligible - Money Saving Expert

Monita56

Thank you all so much for your replies, and thank you Albermarle for the link about tax-free savings, as I didn't realise that, and based on what I've read, I should be ok tax wise on my savings! So, based on what all of you are saying, would I be better to do as follows:

*Put £20,000 into a 1 year fixed cash ISA (I can get 5.85% with Virgin Money, as I already have my current account and saver plus account with them)

*Put £75,000 in a 1 year fixed NS&I savings account

*Keep the rest in my Virgin Money Saver Plus account, as it's an easy access account, although the interest rate isn't the best, (or should I look to see if there's a better easy access savings account?), so that I'd be able to access it if I need it, once I know what the SVR is, or if it's worth re-mortgaging to a new fixed rate, when my current fixed rate ends

Sorry for the additional questions, but I really want to get this right! 

xylophone

Keep the rest in my Virgin Money Saver Plus account, as it's an easy access account, although the interest rate isn't the best, (or should I look to see if there's a better easy access savings account?), 

How about

https://www.shawbrook.co.uk/direct/savings/personal-savings/easy-access-savings-accounts/

Monita56

Wow! That is a good one, thank you 😁

Macgomez1

Sadly not this year for me. Spoke to financial advisor today. Of my 5 pensions and 1 fidelity account 3 can be pulled together, 1 the exits fes are almost 1/3 of the value and yhe other 2 are DB... giving almost £6k with Scot Wid and £7k with other.... can't touch till 65
So have decided to work on till 60. Only 2 years to go....

QrizB

Macgomez1 said:

1 the exits fes are almost 1/3 of the value

I thougt exit fees had been banned? Can we have more details of the provider and how invested?

Macgomez1 said:

other 2 are DB... giving almost £6k with Scot Wid and £7k with other.... can't touch till 65

That's a total of £15k pa as DB pensions? I'm surprise you can't draw them early, with actuarial reduction.

Marcon

QrizB said:

Macgomez1 said:

1 the exits fes are almost 1/3 of the value

I thougt exit fees had been banned? Can we have more details of the provider and how invested?

No. See https://www.unbiased.co.uk/news/pensions/how-to-beat-pension-provider-exit-fees

Roger175

Monita56 said:

Thank you all so much for your replies, and thank you Albermarle for the link about tax-free savings, as I didn't realise that, and based on what I've read, I should be ok tax wise on my savings! So, based on what all of you are saying, would I be better to do as follows:

*Put £20,000 into a 1 year fixed cash ISA (I can get 5.85% with Virgin Money, as I already have my current account and saver plus account with them)

*Put £75,000 in a 1 year fixed NS&I savings account

*Keep the rest in my Virgin Money Saver Plus account, as it's an easy access account, although the interest rate isn't the best, (or should I look to see if there's a better easy access savings account?), so that I'd be able to access it if I need it, once I know what the SVR is, or if it's worth re-mortgaging to a new fixed rate, when my current fixed rate ends

Sorry for the additional questions, but I really want to get this right! 

Monita56

If I'm reading it correctly, you have £110k in savings and a £79k mortgage which comes to the end of the low fixed rate in May 24. Therefore you just need to make sure you have £79k in an instant access account to pay off the mortgage in May.

If you were to put £75k into a 1 year fixed NS&I savings account, as you say above, you wouldn't be able to clear the mortgage in May and would risk paying a high rate if you drift on the the SVR.

The key thing is that come May, you weigh up what deal you can get on your mortgage and compare it to what rate you can get in a savings account. It's not actually quite so simple as you will potentially have arrangement fees to pay also, should you decide to continue the mortgage.