Investing £150K - pay off a chunk of mortgage, invest in ISAs & stocks or a bit of both

sinawill

We have £295K left on our mortgage (16 year term) and the house is valued conservatively at £750K.

Through a combination of saving over years, some inheritance and a generous redundancy package, we potentially have £150K to save, invest or reduce the mortgage by - or some mix of all three. 

Reducing the mortgage by this amount would leave us without a safety cushion but both partners are now working again on comfortable salaries so this could be worked up over time again. No debts, no real immediate demands on the money. Pensions being paid into, one child of primary school age. 

What would you do?

steve866

What is your current mortgage interest rate and how long is it fixed for?

kimwp

You could increase pension contributions to gain the tax (and NI if through salary sacrifice) by reducing your salary to minimum wage and living off some of the £150k. Obviously the money would be locked away until the age you can access it. 

This could increase your pension pot significantly quite quickly. 

stuhse

My advice based on my experience.  Use all of it to pay your mortgage down....that way if your circumstances unexpectedly change (eg. job loss or illness) you are closer to owning your house and less likely to have to give it up.   Continue to pay the same as you do now on your mortgage.ie overpay..you will be amazed how fast it comes down. Use the Mse mortgage calculator..you will probably turn your 16 years into 6 (imagine mortgage free in just 6 years time...believe me it feels great and it reduces your risk).  Once the mortgage is paid off use the mortgage payment money to pay into your pensions...and head towards an early or more affluent retirement...which ever floats your boat.

Put your new mortgage debt of 145k  and your current mortgage monthly payment into this calculator...let us know the outcome !

https://www.moneysavingexpert.com/mortgages/mortgage-overpayment-calculator/

El_Torro

My priority for the £150k would be to have an emergency fund. This is typically between 3 and 6 months worth of living costs held in cash. An emergency fund is important in case of job loss, house repairs, new car, etc... 

With the rest of the money Stocks & Shares ISAs, pension contributions and overpayments on the mortgage are all good options. You'll make more money in the long run by investing the money rather than overpaying the mortgage, though there is a feeling of security that comes with reducing the size of your mortgage.

prowla

You're paying interest on the mortgage, so would investments/pension yield more than that?

penners324

Pensions need to be a priority. Maybe half on mortgage and half into pensions?

El_Torro

prowla said:

You're paying interest on the mortgage, so would investments/pension yield more than that?

Yes, they would. At least if we look at mortgage rates in the last few decades and compare them to investment returns they would. Investment returns are uncertain and past performance is not an indicator of future performance, though it's pretty clear that investing wins in the long run (10 years or more). 

This is even before taking into account that paying into a pension is a lot more tax efficient than using money that has already been taxed to pay into a mortgage.

tunde10

Personally dumping it all in a pension is bad advice if you're in your 30s or early 40s with a young child.

Its easy for people of pension age to give out that advice but if you're 20 years plus away from retirement then there could be financial consequences.

For example, losing your job or going through a divorce will mean having dumped it all in a pension, there is no access to the money and the mortgage and other life expenses still need to be paid.

In my opinion, paying down the mortgage significantly and investing a decent chunk should be priority. A smaller chunk can go into pensions, contributions can be increased over time once the immediate life obligations such as mortgage and children reduce.

Schwarzwald

Many more facts needed before being able to give meaningful advise, otherwise people just telling you what they wld do instead of what wld be best for you in your situation.

mortgage rate?
how long fixed?
age?
risk appetite?
financial goals / priorities?

Albermarle

This same question comes up repeatedly, on the Savings & Investments and Pensions boards.

Financially it is usually better to invest the money, usually via a pension due to the tax relief. Especially if you have a low mortgage interest rate.
Emotionally ( for many people) it feels better to use it to reduce the mortgage. This is especially so if job security could be an issue.
Then maybe investments outside a pension for the more medium term, and some savings for the short term.

A mix of all four is usually the way forward.