Pay off mortgage & invest instead?

eskbanker wrote: »

albert101 wrote: »

We still owe about £50k on the mortgage, which costs us c3% pa, and c £600 per month.

Somebody's calculator must be broken then - 3% pa on a £50K mortgage would be £1500, or £125 per month! Which of those three figures you've quoted is the wrong one?

They might quite easily be the 'right' ones.

If you agree a £100k mortgage at 3% over 18 years, it costs a bit over £7200/yr or £600/mo; which is still the same monthly outgoing when you get down to your last 8 years and owe £50k. Likewise if you just took out an 8 year mortgage for £50k. It will cost you £600pm of cashflow.

So while the interest cost saved by clearing the mortgage is only an initial £150pm of real 'expense' (as £450pm was paying off the capital portion of the debt), the cash freed up to make investments in something other than the property if the mortgage were paid off is £600pm.

The OP wasn't clear in either of his posts whether the £200k in various ISAs included in his list of assets was in Cash ISAs or S&S ISAs which obviously changes the risk profile significantly depending on the answer.

If they are all in S&S and the premium bonds are his family's only 'near cash' assets then I would agree with his cautious approach not to dump all his premium bonds into paying down mortgage or buying pension, because he's right that in an emergency you can't always remortgage your house or raise new credit, especially if the emergency is that you are jobless. However, the £50k of Premium bonds is around about an entire year's net salary (from a £70k gross) which is quite a lot swilling around as a slush fund 'just in case'.

If the £200k ISAs are cash ISAs (at almost 3x his gross annual salary) then holding PBs is hypercautious and it makes sense to grab 40% tax relief on whatever amount of his salary is not already being contributed to pension, by making further pension contributions to reduce him down to the basic rate tax bracket if possible, this year and next and perhaps future years too.

If the £200k ISAs are actually investment ISAs and there's very little cash sitting around other than the PBs, then it might be more sensible to consider only using up half the PBs and retaining the rest as a reasonable £25k 'emergency fund' (although better interest rates than PBs can be found with various banks and building societies, for smaller amounts of money). The half of the PBs that is to be used up could still most efficiently be used on pension contributions as the deferral or avoidance of 40% tax is very nice; though if he was particularly cautious he could perhaps spend part of the PBs on clearing a bit of the mortgage given that the 3% is at least a higher return he was getting from holding PBs.

But IMHO if the £200k ISAs are investment ISAs, and the home is already a forever home without needing hundreds of thousands to be spent on it in the forseeable future, and there are no major life plans for the £200k other than retirement at age 60+, it would seem to be sensible to sell out of some of the ISAs to fund the grabbing of even more of this pension contribution 40% tax relief. So whether the £200k ISAs are S&S or cash, you probably don't need to spend them all before your personal pension contribution access age, so they can be utilised to help increase pension contributions over the coming years up to the max amount that benefits from higher rate tax relief.