Pay off mortgage & invest instead?

albert101 wrote: »

Thanks to all for your very useful replies.

Yes my mortgage is a repayment mortgage, so repay the principle plus the interest of c £1500 pa = £7200 pa or so. It has 8 years or so to go. I can overpay without penalty, and in theory can get it all back should I want it.

As your T&Cs say you can (in theory) get it all back if you want it you would probably at least find you could reduce your £600pm outgoing to £0 if you were in a pinch and had made voluntary overpayments in the past. Though it's perhaps not perfect, if for example you later swap deals onto a different rate or with a different bank, that option might not be available. So, don't pay off what you're not comfortable paying off, even if the rate (3%) is tempting compared to what you're expecting to be earning on the PBs.

I would probably look to pay off 'a bit' to save you the hassle of looking around for a better rate than the PBs are offering on a sum of money as large as £50k. For the first £20k or so between you, it is relatively easy for a couple to get PB-beating instant access rates on their cash with high interest current accounts, regular saver accounts etc but it gets progressively tougher the more you have and many people will not have the appetite to do it on larger sums. If you only had £25-30k of cash instead of the £50k, you'd have a decent emergency buffer and not too much trouble getting decent rates.

Yes, the £200k is in S&S.

Between us we have around £300k in pension pot at present = probably not enough, I know... Currently putting £10k pa into it.

If you're putting £10k in it (not sure if that's just your gross contribution or employer too) out of your £70kish salary then you have £15k or so extra you could be contributing and getting higher rate tax relief before your adjusted gross salary drops to under £46k and you're only paying basic rate on it. I would take £15k a year out of the S&S ISAs to fund that, because 40% tax relief and paying your marginal rate in retirement (after a tax free lump sum) is a better deal than just using the ISA and not paying tax in retirment.

Unless you expect to be a higher rate taxpayer in retirement it might be worth you/spouse also doing further pension contributions at lower tax relief rate too - as getting 20% tax relief now, getting a tax free lump sum out of it, and paying 20% tax on the rest in retirement, is still a net gain. But obviously locking the money away til yor late 50s is more restrictive than having free access to the ISAs whenever you like, so don't go OTT.

If you don't want to move a huge proportion of your entire ISA stash into pension, then don't 'waste' contributions to pensions at 20% tax relief rate, because then you'll be less able to afford those important contributions at 40% tax relief rate year after year.

If we're talking about moving money from S&S ISAs to Pensions to grab the tax relief, it doesn't particularly need to be a concern that you perceive the markets to be high or low at the moment because if they are high, the ISAs funding the pension will be at a nice big value making the contributions easier to afford.