Best way to pay mortgage?

TenBob

I'm 53, and I've made some pretty bad financial decisions, divorce, and a failed property investment, so was hoping to get some opinions on next steps. I lost my job a few years ago, now my new salary is approximately half (55k) what I used to earn. I have 5 years left on an interest only mortgage deal (1.8% APR) with 212k balance. The property is worth approx 400k. The 'plan' is to save into a stocks and shares ISA (current balance 50k) for as long as possible then remortgage in 5 years and carry on until I have the 212k. Am I better off just paying the mortgage, continuing with the ISA, or chucking everything I can into my local government pension instead? (I don't intend to retire until 70). Thank you 

Mark_d

As long as you're paying at least 10% into your pension you should be ok there.  Apart from that, your plan with interest-only mortgage and S&S ISA sounds good to me.  Infact when my current mortgage fix comes to an end, I plan to go interest-only and do exactly what you're doing.

Hoenir

Much depends on your personal risk appetite. Personally I was pleased to see the back of our mortgage. As once gone. Takes away much of the worry of maintaining a high paid job in your later years. Having gone through the whole cycle of companies failing, being taken over, starting from ground zero in my working lifetime. Then there's the secondary issue of investment returns. History is littered with good, indifferent and bad periods. No knowing what might happen just when you need the money. Currently you can put your savings on deposit or buy Government bonds. As interest rate you are paying is lower. In five years time likely to be a very different outlook. 

DE_612183

When I was 53 I thought I'd carry on working for another 15-20 years no problem.

I've just hit 60 and know I'll last a year or two at most.

Never underestimate the changes that just a few years will bring - banking on working to 70 is not something to rely on.

I'm in the public sector have a Home Based job that is easy - but I'm still looking to finish in the next year...

Linton

How do you intend to pay off the IO mortgage? How much is owed?

TenBob

Linton said:

How do you intend to pay off the IO mortgage? How much is owed?

Using the funds from the ISA? I owe 212k.

TenBob

DE_612183 said:

Never underestimate the changes that just a few years will bring - banking on working to 70 is not something to rely on.

Yes I understand, but I've not built up enough pension to retire early so what choice do I have? I'm insured upto 70yo in case the worst happens, and also have permanent health insurance to 60.

El_Torro

A a,minimum you should avoid paying 40% income tax by paying enough into your pension. This can either be your local government pension (a great scheme) or a private pension. I don't know much about government pensions but a private pension is accessible at 55. You can even take 25% of the pension tax free, which can contribute towards paying off your mortgage.

If you are going to retire in 17 years and pay off the mortgage then it's worth investing in a S&S ISA rather than overpaying your mortgage. That's a big if though, who knows what your health / mindset will be like over the next 17 years?

TenBob

Hoenir said:

Much depends on your personal risk appetite.... Currently you can put your savings on deposit or buy Government bonds. As interest rate you are paying is lower. In five years time likely to be a very different outlook. 

I don't think I have much choice tbh, so have to accept the risk. My funds are currently sat in a cash ISA at 5.1%, so I'm mulling over when to move to S&S. I'm reading that now isn't a good time though. Is it ever? 

Yeah, in 5 years it's unlikely I'll get another IO mortgage at the same rate. 

george4064

If you've made 'some pretty bad financial decisions' in the past, maybe an interest only mortgage arrangement isn't for you?

It's a very risky strategy to take, and with your history it would seem it's wholly inappropriate for you.

Appreciate you probably can't convert it to a repayment mortgage (you could ask your lender), I would suggest you at least make overpayments so that it is effectively a repayment mortgage.

TenBob

george4064 said:

If you've made 'some pretty bad financial decisions' in the past, maybe an interest only mortgage arrangement isn't for you?

It's a very risky strategy to take, and with your history it would seem it's wholly inappropriate for you.

Appreciate you probably can't convert it to a repayment mortgage (you could ask your lender), I would suggest you at least make overpayments so that it is effectively a repayment mortgage.

The interest only mortgage is 1.8% APR and allows capital repayments, so no need to swap for a repayment mortgage. 

I appreciate some people wouldn't want the risk, but even putting the money into a cash ISA which doesn't carry the risks of stocks, would be better off by several thousand pounds over the next 5 years?