Liquidate ISA to pay remaining mortgage debt or invest? 🤔🤑

cohedja · 21 January 2020 at 12:30AM

Hi!
It's the first post on the forum for me ... 😀
I'm looking for a little advice from savvier folk than myself ... !

I'm 33 years old and am in a position to be able to pay what's left of my mortgage balance with cash when my 5-year fix (2.89%, £100k loan on £150k property) ends this April. I've overpaid thus far (without exceeding 10%/year penalty) so there is approximately £50k remaining. I have this amount held in a cash ISA, and on top have a reasonably substantial emergency fund (5 figures) in current accounts.

I have a part-time job (4 days per week) with a base salary of £40k/year plus overtime, in addition to a LTD company for freelance work with variable profits of approximately £15k - £20k per year (so I take dividends up to the higher rate tax bracket and leave the rest in the company).

I have no other debts except for my student loan (plan 1, which is being paid off through my salary) and my pension contributions are over 8% per year with an employer match.

My question is whether I should liquidate my cash ISA come April and clear the remaining mortgage debt, or switch to a new mortgage deal (I'm being offered 1.79% for a five-year fix) and invest the extra £50k in stocks and shares (within an ISA) for future planning.
Going forwards I expect to be able to contribute the maximum allowable £20k/year to a stocks and shares ISA.

I am in a job that I cannot ever imagine fully retiring from (professional musician), and I currently have no dependents though this could change far in the future!

I'd be very grateful for any and every piece of advice you could throw my way regarding paying off the mortgage or investing,
Thanks in advance 😇🙂

varfor · 21 January 2020 at 6:54PM

Hi cohedja. I think it depends on what you currently have in pensions and investments. If you don't have a lot it could be worth considering the investment option. Stocks have performed better than 1.79% over the long term but that doesn't mean you can't lose money.

Reasons to pay the mortgage instead would be the psychological benefit or if you feel insecure in your work.

savingholmes · 22 January 2020 at 10:04AM

I think it also depends how long you have left on your mortgage ie if there was a short term drop in the value of your shares could you ride it out. I am planning to put my money into a pension - and therefore the stock market with a view to using a tax free lump sum to pay it off. My strategy is higher risk than just repaying the mortgage but is cushioned from the risk by the tax relief I will get.

The other way of looking at it - is how much peace of mind would paying off the mortgage buy you. I wouldn't pay a penalty for repaying early - that doesn't sound logical to me. If your mortgage was paid off you could invest and stay the long term without over-worrying about stock market performance. It does sound like you have too much in cash and are not getting that money to work for you.

Perhaps try reading The Simple Path to Wealth by JL Collins or watch Our Rich Journey or Choose FI or Mad Fientist on YouTube and see if they inspire you to look at the stock market differently. Only you can decided how much risk you are comfortable with. In real terms though your cash is eroding in value by inflation - some experts call this pound cost ravaging.

Liquidate ISA to pay remaining mortgage debt or invest? 🤔🤑

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