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  • FIRST POST
    • Durban
    • By Durban 9th Nov 18, 1:05 PM
    • 104Posts
    • 286Thanks
    Durban
    Is this a Good Plan?
    • #1
    • 9th Nov 18, 1:05 PM
    Is this a Good Plan? 9th Nov 18 at 1:05 PM
    Our goal has always been to overpay and pay off our mortgage early
    About a year ago, I realised that we could make more money on investments and savings as mortgage rate is only 1.85%. The goal then became to still pay off the mortgage early but with the savings and investments. There is probably around 4 and a half years to run on it or 3 years left with paying it off early.

    In 2 and a half years, the balance will be around £22,500 and we will probably have around £20,000 in savings and investments.

    My husband will be 57 then and has an old Aviva stakeholder pension with around £65,000 in it. He also is contributing to his current DC work scheme and will have a very small DB pension that would pay around £200 pm from 65. I have a good lgps scheme and added AVCís and a BTL. We havenít any plans to retire early and will both get full SP at 67.

    I was originally thinking of putting the £20,000 into his Aviva pension, getting the basic rate tax relief, and paying the mortgage off by taking the TFLS. He would not take anymore out of the pension until retirement. I know it would have to be transferred to a drawdown account.

    However, I then had another thought. What if we put the £20,000 into the pension, into a cautious fund but left it there. Then extended the mortgage for 10 years to lower the repayments to around £200 pm. The money we put aside in the cautious fund is always there to pay off the mortgage if necessary, but would ideally be left for the next 10 years. Surely, in 10 years, in a cautious fund ,with a 10 year timescale ,it should grow to more than it would had it been paid to the mortgage and is always there to pay it off if we had to in case of emergency?
    Mortgage at highest start date - 25/9/2014 - £92000
    Mortgage now 13/4/2018 - £48,674
    MFD - October 2025 MF Goal Date 2021
Page 1
    • kidmugsy
    • By kidmugsy 9th Nov 18, 1:51 PM
    • 12,070 Posts
    • 8,518 Thanks
    kidmugsy
    • #2
    • 9th Nov 18, 1:51 PM
    • #2
    • 9th Nov 18, 1:51 PM
    You propose to gear up with mortgage debt to invest in the stock market. It might work out well but personally I think this is the wrong time in financial history to risk it.

    It might, however, be a good scheme to extend the mortgage and put your surplus funds into those loss-leader Regular Saver and Current Accounts that pay 3% - 5% AER. There you'd get a profit that's very low risk.

    If I wanted to try something else I might consider moving your husband's stakeholder to a SIPP and investing part of it, say 25%, in gold. You would then have your capital spread over an owner-occupied house, a BTL, two DB pensions, some gold, some stock market investments and some cash. It might prove unwise to have a large proportion in UK property, but otherwise that looks to me to be decent diversification, depending on how you've scattered the stock market investments.

    Alternatively follow your instinct and reduce risk by eliminating or reducing the mortgage loan at the first convenient moment using a TFLS. Be sure, though, to preserve a good emergency cash fund. There's no hurry to top up your husband's pensions if he intends to work on well into his sixties.
    Last edited by kidmugsy; 09-11-2018 at 1:55 PM.
    Free the dunston one next time too.
    • Durban
    • By Durban 9th Nov 18, 3:12 PM
    • 104 Posts
    • 286 Thanks
    Durban
    • #3
    • 9th Nov 18, 3:12 PM
    • #3
    • 9th Nov 18, 3:12 PM
    You propose to gear up with mortgage debt to invest in the stock market. It might work out well but personally I think this is the wrong time in financial history to risk it.

    It might, however, be a good scheme to extend the mortgage and put your surplus funds into those loss-leader Regular Saver and Current Accounts that pay 3% - 5% AER. There you'd get a profit that's very low risk.

    Originally posted by kidmugsy


    Thank you kidsmugsy for the reply. I thought that if it was invested in gilts within the stakeholder pension and adding on the tax relief and leaving for 10 years , we should come out at the end better off? This depends on interest rates and the stakeholder pension fees are low.

    I should add , that the extended mortgage would be on a repayment basis so would be paid off at the end of the ten years anyway.


    I think that possibly erring on the side of caution and putting the £20,000 into the pension, getting the basic rate tax relief and then drawing out again to pay off mortgage at 57 may be the right thing to do.
    Last edited by Durban; 09-11-2018 at 3:20 PM.
    Mortgage at highest start date - 25/9/2014 - £92000
    Mortgage now 13/4/2018 - £48,674
    MFD - October 2025 MF Goal Date 2021
    • nrsql
    • By nrsql 9th Nov 18, 3:35 PM
    • 1,825 Posts
    • 635 Thanks
    nrsql
    • #4
    • 9th Nov 18, 3:35 PM
    • #4
    • 9th Nov 18, 3:35 PM
    Could you quickly get the money (efficiently) out of the pension at any time to pay off the mortgage if it was needed.
    If not I would say it is too risky.
    I would also be concerned about having a fixed debt (mortgage) being paid by a variable investment - it might work but might not.
    I would want to have the funds guaranteed to be available - but then £20k isn't a lot to risk depending on what other assets you have and expect to accrue. It's up to you whether you think the reward would be worth the risk.

    I haven't paid off my mortgages but do have the funds available in cash like savings if needed.
    • Durban
    • By Durban 9th Nov 18, 3:50 PM
    • 104 Posts
    • 286 Thanks
    Durban
    • #5
    • 9th Nov 18, 3:50 PM
    • #5
    • 9th Nov 18, 3:50 PM
    Could you quickly get the money (efficiently) out of the pension at any time to pay off the mortgage if it was needed.
    If not I would say it is too risky.
    I would also be concerned about having a fixed debt (mortgage) being paid by a variable investment - it might work but might not.
    I would want to have the funds guaranteed to be available - but then £20k isn't a lot to risk depending on what other assets you have and expect to accrue. It's up to you whether you think the reward would be worth the risk.

    I haven't paid off my mortgages but do have the funds available in cash like savings if needed.
    Originally posted by nrsql

    I don't think it would take that long to get the money out of the pension if needed. However, the repayment on it would be around £200 pm which we can afford easily. Inflation would erode that debt and hopefully the £20,000 that would have been put into the pension would have grown. We would still be paying off the mortgage on a repayment basis , just extending it.

    To be honest , I would hope to not need if for the mortgage and just let it run for another 10 years, paying £200 pm ( dependant on interest rates ) and having a £20,000 plus tax relief and hopefully growth to husbands pension, albeit , that part in a cautious fund.
    Last edited by Durban; 09-11-2018 at 3:57 PM.
    Mortgage at highest start date - 25/9/2014 - £92000
    Mortgage now 13/4/2018 - £48,674
    MFD - October 2025 MF Goal Date 2021
    • kidmugsy
    • By kidmugsy 9th Nov 18, 7:17 PM
    • 12,070 Posts
    • 8,518 Thanks
    kidmugsy
    • #6
    • 9th Nov 18, 7:17 PM
    • #6
    • 9th Nov 18, 7:17 PM
    I thought that if it was invested in gilts within the stakeholder pension and adding on the tax relief and leaving for 10 years , we should come out at the end better off?
    Originally posted by Durban
    I hadn't realised that you were considering being as cautious as that. Gilts, eh? But still they yield less than you can get on cash at the moment. And the cash won't lose value as compared to your mortgage loan: gilts might.
    Free the dunston one next time too.
    • Deneb
    • By Deneb 10th Nov 18, 9:16 AM
    • 345 Posts
    • 272 Thanks
    Deneb
    • #7
    • 10th Nov 18, 9:16 AM
    • #7
    • 10th Nov 18, 9:16 AM
    We've been doing something similar for the last 11 years, but only with fixed rate cash ISAs, since I decided at the outset that I wasn't prepared to risk the money set aside to pay off our mortgage on the stock market. We've averaged around 3.5% interest over that period, with the largest proportion of the funds in two accounts that would permit us to withdraw 25% without penalty, the rest subject to 180 days loss of interest - so there was an escape route if interest rates rocketed.

    With our mortgage repayments at less than half that interest rate over the same period, we've done quite well. Had we invested the money in funds over the same amount of time we may possibly have done even better, but as we are now getting close to the point at which our current mortgage will have to be redeemed, I know I would have had quite a few sleepless nights over the last couple of years at least, wondering when the current bull run was going to end. Hindsight is a wonderful thing, but had markets gone in a different direction we could also easily have been worse off than when we started.

    I'm not sure that I will want to extend this any further when our current mortgage ends though. I don't think we could get a new mortgage deal that would make it worthwhile in the current climate, especially with the relatively poor rates now available on cash ISAs and with other cash pretty much fully committed to every "decent" savings rate on offer.
    • bluenose1
    • By bluenose1 10th Nov 18, 12:00 PM
    • 2,014 Posts
    • 3,240 Thanks
    bluenose1
    • #8
    • 10th Nov 18, 12:00 PM
    • #8
    • 10th Nov 18, 12:00 PM
    We are paying extra into my pension rather than paying the mortgage off quicker. As my employer offers salary sacrifice, for every £68 I contribute £100 is put into my DC pot.
    Even if I am earning over tax personal allowance and paid tax on this I will get £85 for my £68 investment as first 25% tax free. A return of 17%, so unless my D.C. pot really takes a tumble then it should be to our advantage.
    Money SPENDING Expert

    • kidmugsy
    • By kidmugsy 10th Nov 18, 12:44 PM
    • 12,070 Posts
    • 8,518 Thanks
    kidmugsy
    • #9
    • 10th Nov 18, 12:44 PM
    • #9
    • 10th Nov 18, 12:44 PM
    ... As my employer offers salary sacrifice ...
    Originally posted by bluenose1
    That makes a lot of difference. My last employer started offering sal sac after I retired. Bustards!
    Free the dunston one next time too.
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