Another what would you do thread
Discussion
My 1.8% deal is up in July. I'm nearly 53 and have 11 years left on a mortgage of 170k.
I have 86k in an ISA (I have another rainy day fund which I consider sufficient) which is for long term growth.
There are two factors at play here, the rise in my mortgage rate, probably to around 4.5%, and the fact that the stock market is at a historical high.
Options
1. Reduce term to 10 Years, fix for the next five years and crack on as normal.
2. Reduce term to 5 years, pay the 86k down on the mortgage which will be broadly similar in payments to 1. Then at Year 5, pay the mortgage payments into an ISA to build back up.
Other factors.
I pay 20% into my pension which will increase to 26% at age 54.
I pay my annual bonus into my pension.
There is a an inheritance of 300k+ likely to happen in the next 10 years.
What would you do?
I have 86k in an ISA (I have another rainy day fund which I consider sufficient) which is for long term growth.
There are two factors at play here, the rise in my mortgage rate, probably to around 4.5%, and the fact that the stock market is at a historical high.
Options
1. Reduce term to 10 Years, fix for the next five years and crack on as normal.
2. Reduce term to 5 years, pay the 86k down on the mortgage which will be broadly similar in payments to 1. Then at Year 5, pay the mortgage payments into an ISA to build back up.
Other factors.
I pay 20% into my pension which will increase to 26% at age 54.
I pay my annual bonus into my pension.
There is a an inheritance of 300k+ likely to happen in the next 10 years.
What would you do?
I guess it depends on how quickly you want to get rid of your mortgage and what % of your salary is needed to make payment - it needs to make a meaningful difference. I went through a similar scenario 15yrs ago and paid off our mortgage when my excess savings equalled our outstanding debt. In hindsight I wish I had of had that 100+k in a low-cost global index instead.. but I didn't really know about investing back then - obviously I would say this as we have just had ultra-low interest rates and the longest bull market in history.... but in the situation again I would probably instead just carry on with the mortgage and ISA and treat them as 2 different pots rather than pay off the debt in full. A little debt does no harm.
When do you want to retire?
Can you use any Pension Commencement Lump Sum (PCLS) to deal with the mortgage?
Do you envisage staying where you are for the longer term?
If the £86K is for long term growth and you are approaching pension age, does it make sense to star shuffling some of it into a pension to save some income tax?
Oh, and option 1 if I had to choose just between them.
Can you use any Pension Commencement Lump Sum (PCLS) to deal with the mortgage?
Do you envisage staying where you are for the longer term?
If the £86K is for long term growth and you are approaching pension age, does it make sense to star shuffling some of it into a pension to save some income tax?
Oh, and option 1 if I had to choose just between them.
Thanks for the replies.
I don't know. I have a fairly easy home based (for the most part) role which is well paid. There is no point in jacking it in for a B&Q assistant job, so I might as well carry on. I think I'd like to drop a day perhaps around 60 as I have a couple of DB pensions paying out then. My DC pensions are currently on a 65 years old retirement strategy.
Yes possibly the DB lumps sums will cover the final two years if I opted for Option 1.
Possibly not. My youngest will be 27 by then so I could reasonably expect that it will just be the two of us rattling round. Something smaller would be sensible, not least to reduce the burden of council tax, but to free up equity to indulge ourselves.
It's another option, however I will pay 40% on the way out. It would be better to put it into the wife's pension but then 20% is less attractive. Ultimately I'd like to have that lump of cash in a tax free wrapper at retirement, the question is more on whether interest on mortgage is > grwoth over the next five years. Magic ball I know.
Thanks, that would be the default for me as well.
Phooey said:
I guess it depends on how quickly you want to get rid of your mortgage and what % of your salary is needed to make payment - it needs to make a meaningful difference. I went through a similar scenario 15yrs ago and paid off our mortgage when my excess savings equalled our outstanding debt. In hindsight I wish I had of had that 100+k in a low-cost global index instead.. but I didn't really know about investing back then - obviously I would say this as we have just had ultra-low interest rates and the longest bull market in history.... but in the situation again I would probably instead just carry on with the mortgage and ISA and treat them as 2 different pots rather than pay off the debt in full. A little debt does no harm.
This is the gamble! If I do nothing and the ISA crashes I will be in a similar frame of mind MaxFromage said:
Have you thought about an offset mortgage? Barclays will allow their ISAs to be offset.
They will offset cash ISA only and unless I needed to access the money at some point, I don't see the benefit. Am not looking to lower my overall payment, I am wondering whether it would be a good strategy to reorder my investments.xeny said:
When do you want to retire?
Can you use any Pension Commencement Lump Sum (PCLS) to deal with the mortgage?
Do you envisage staying where you are for the longer term?
If the £86K is for long term growth and you are approaching pension age, does it make sense to star shuffling some of it into a pension to save some income tax?
Oh, and option 1 if I had to choose just between them.
To answer:Can you use any Pension Commencement Lump Sum (PCLS) to deal with the mortgage?
Do you envisage staying where you are for the longer term?
If the £86K is for long term growth and you are approaching pension age, does it make sense to star shuffling some of it into a pension to save some income tax?
Oh, and option 1 if I had to choose just between them.
I don't know. I have a fairly easy home based (for the most part) role which is well paid. There is no point in jacking it in for a B&Q assistant job, so I might as well carry on. I think I'd like to drop a day perhaps around 60 as I have a couple of DB pensions paying out then. My DC pensions are currently on a 65 years old retirement strategy.
Yes possibly the DB lumps sums will cover the final two years if I opted for Option 1.
Possibly not. My youngest will be 27 by then so I could reasonably expect that it will just be the two of us rattling round. Something smaller would be sensible, not least to reduce the burden of council tax, but to free up equity to indulge ourselves.
It's another option, however I will pay 40% on the way out. It would be better to put it into the wife's pension but then 20% is less attractive. Ultimately I'd like to have that lump of cash in a tax free wrapper at retirement, the question is more on whether interest on mortgage is > grwoth over the next five years. Magic ball I know.
Thanks, that would be the default for me as well.
Depends if you want to retire in the house.
We don't intent to and won't have paid off the mortgage by the time my wife retires. I'm already retired.
We have an offset so the combination of the offset account and the house price when we sell will fund the next stage of our house buying and hopefully release some equity as we expect to downsize with no kids.
We don't intent to and won't have paid off the mortgage by the time my wife retires. I'm already retired.
We have an offset so the combination of the offset account and the house price when we sell will fund the next stage of our house buying and hopefully release some equity as we expect to downsize with no kids.
okgo said:
BoRED S2upid said:
Option 2 for me. Get rid of it ASAP then build savings back up.
He’s 53…those ISA years are gold dust!Gassing Station | Finance | Top of Page | What's New | My Stuff