How and where to invest

lookstraightahead

Between the two of us, we have about £500-£750 to invest a month in something, and would really appreciate some ideas.

I'm 55, husband is 53. We both work and have contributory pensions. Mine will give me a few hundred quid a month, my husband's private pension is currently worth about £150000. All being well, we are aiming to continue to work full time ish, then part time until we are unfit or unable - we are both in teaching / training / lecturing jobs, both of which offer flexibility and contract hours. I've full NI contributions and my husband has about 4 years left.

we have a £148000 mortgage remaining, which is on 1.89% fixed for the next 2 years, then 18 years left (eek).  We have about £200000 equity. We can pay up to 10% over on our mortgage per year if we want to.

We have no debt or car loans and 1 child who is independent, working full time and lives away.

what to do? Lower the years left on the mortgage after the 2 years of remaining low interest? 

Voyager2002

Firstly, your mortgage interest rate is below the rate of inflation so your lender is virtually paying you to be a borrower! However no-one knows where interest rates will be when your deal expires, so you should be prepared to pay off a chunk of the debt at that point. Therefore I do not advise you to tie up all your savings before then. Two years is rather a short time for investing, so you might consider savings options such as the regular savings accounts offered by the major banks, such as Lloyds and Nationwide. You should also consider depositing the maximum £4,000 in the Santander Edge Savings account.

Secondly, you should consider longer-term investments to repay the mortgage when it eventually becomes due. For a period well in excess of five years, equities (shares in companies) are appropriate: you might invest in a global 'tracker' (so your investment is spread among all the major companies in the world) such as £FWRG. Hold this in a tax-efficient "wrapper" such as an ISA or a pension savings plan such as a SIPP.

lookstraightahead

Thank you - that makes perfect sense. I know it's an amazing interest rate 

El_Torro

Will you be able to afford your mortgage when the interest rate doubles (or more)? Investing wisely in a pension or ISA is expected to give better returns than paying off your mortgage early, though you have to make sure you keep up with your monthly repayments. Not much point in having a huge pension if the bank repossesses your home before you're able to access the pension. 

Paying off the mortgage early can give benefits that aren't purely financial, for example the feeling of security. Some people like to put every last penny into the mortgage to pay it off early. Some people get an interest only mortgage and use investments to pay it off at the end of the term. Most people do something in between. 

kempiejon

Like you we're fixed at sub 2% with about 14 months left. I made my plan about 5 years ago and have been adding all the money I can to my SIPP and later next year I'll get 25% out and will add it to the mortgage hopefully clearing a big chunk. 2 years is a bit short for stock market investments so mightn't work for you. In my plan, I'm a confident investor and had a 7 year timeline, I benefited from the tax back on contributions and then 25% of that tax free but we shouldn't let the tax tail wag the investing dog.

With a 2 year outlook cash is probably best and an ISA to protect you from tax deducted. Once you come off the low rate and today you'd be paying around 5% might be time to direct as much as you can to reduce the mortgage term.

lookstraightahead

Thank you El Torro. I've done some mortgage calculations based on 6% and also based on a 10 year mortgage to see how much more it would be. We do have about another £400  income as well but this is going into house stuff like repointing and decorating etc, which should be done by the time we come to remortgage.

This is all based of course on being able to continue working.  

lookstraightahead

kempiejon said:

Like you we're fixed at sub 2% with about 14 months left. I made my plan about 5 years ago and have been adding all the money I can to my SIPP and later next year I'll get 25% out and will add it to the mortgage hopefully clearing a big chunk. 2 years is a bit short for stock market investments so mightn't work for you. In my plan, I'm a confident investor and had a 7 year timeline, I benefited from the tax back on contributions and then 25% of that tax free but we shouldn't let the tax tail wag the investing dog.

With a 2 year outlook cash is probably best and an ISA to protect you from tax deducted. Once you come off the low rate and today you'd be paying around 5% might be time to direct as much as you can to reduce the mortgage term.

Thank you, yes I'm just getting my head around it all. I've never really had 'spare' money so it's all a bit new