Pay a chunk off the mortage, invest... or a car?
Discussion
I'm not entirely sure on the final figure yet, but I'm estimating I will have around a £75k lump sum after tax in the next couple of weeks, and I'm starting to consider my options.
Apart from a mortgage of around £200k and a car loan with approx. £8k outstanding on it (monthly payments around £450), I have no other lending after recently paying off all credit cards and wife's car loan.
I was planning to spend around £25k of it on a new car after my wife had told me to reward myself. However somebody made a comment to me the other day along the lines of "why would you invest your capital in a depreciating asset when you can just lease a brand new car and invest your money?", and it got me wondering if that was the right choice.
I've never been in this position before, I've always been a spender and not a saver, and to be honest have little idea what the best options are.
I could pay a chunk off the mortgage, but I can afford the mortgage just fine and wouldn't feel as if I'd gained any great benefit from it. Whereas a £25k car in the drive would be lovely
However when I think of splashing a third of it on a car which will be worth at least £5k less a year later, that makes me a bit hesitant.
So, questions:
1) Would you buy a £25k car for cash or would you invest the money and lease a car?
2) Would you pay £50-60k off the mortgage or would you invest it?
3) What are the investment options? I've read up about FTSE trackers, and they seem a decent option for an investment virgin
Personal details: I'm 43, married, one child (8 yrs old), higher rate tax payer, not risk averse but wife wouldn't let me lose it.
Apart from a mortgage of around £200k and a car loan with approx. £8k outstanding on it (monthly payments around £450), I have no other lending after recently paying off all credit cards and wife's car loan.
I was planning to spend around £25k of it on a new car after my wife had told me to reward myself. However somebody made a comment to me the other day along the lines of "why would you invest your capital in a depreciating asset when you can just lease a brand new car and invest your money?", and it got me wondering if that was the right choice.
I've never been in this position before, I've always been a spender and not a saver, and to be honest have little idea what the best options are.
I could pay a chunk off the mortgage, but I can afford the mortgage just fine and wouldn't feel as if I'd gained any great benefit from it. Whereas a £25k car in the drive would be lovely
However when I think of splashing a third of it on a car which will be worth at least £5k less a year later, that makes me a bit hesitant.
So, questions:
1) Would you buy a £25k car for cash or would you invest the money and lease a car?
2) Would you pay £50-60k off the mortgage or would you invest it?
3) What are the investment options? I've read up about FTSE trackers, and they seem a decent option for an investment virgin
Personal details: I'm 43, married, one child (8 yrs old), higher rate tax payer, not risk averse but wife wouldn't let me lose it.
Spending 1/3 of your money on a raidly depreciating asset makes no sense to me. Subject to doing the maths I'd pay off the £8K loan and keep the car. Or if you must change something that works perfectly well, get a 2-3 year old one, saving c.40% of the capital and lose less on the remainder. I wouldn't lease either, it's paying people to sit in offices.
As for paying off the mortgage, well, work out how much you're going to pay between now and when it ends, and what it would cost if you paid it off now - and all the money you earned from now on was yours to keep. In my non-professional opinion, debts are millstones, cash is freedom. How you invest it is up to you.
As for paying off the mortgage, well, work out how much you're going to pay between now and when it ends, and what it would cost if you paid it off now - and all the money you earned from now on was yours to keep. In my non-professional opinion, debts are millstones, cash is freedom. How you invest it is up to you.
Pay off your £8k car loan.
Buy yourself a nice RS4 B7/E92 M3/997 with main dealer warranty for circa £20-£25k. Or buy something that doesn't really depreciate Z3M, Z4M, M3 CSL, Aston v8v, Porsche 964/993, etc.
£33k spent.
Pay off £32k off the mortgage and keep £10k rainy day money. If you trade your current car in then pay more off of the mortgage.
The car will retain a decent % if you buy right, your mortgage payments will drop by 15% and you will be £450 a month better off not having the car payment (which you could overpay on the mortgage). A nice problem to have
Buy yourself a nice RS4 B7/E92 M3/997 with main dealer warranty for circa £20-£25k. Or buy something that doesn't really depreciate Z3M, Z4M, M3 CSL, Aston v8v, Porsche 964/993, etc.
£33k spent.
Pay off £32k off the mortgage and keep £10k rainy day money. If you trade your current car in then pay more off of the mortgage.
The car will retain a decent % if you buy right, your mortgage payments will drop by 15% and you will be £450 a month better off not having the car payment (which you could overpay on the mortgage). A nice problem to have
Stick some figures in here
http://www.moneysavingexpert.com/mortgages/mortgag...
You could take years off your mortgage with £75k (bit boring I know)
http://www.moneysavingexpert.com/mortgages/mortgag...
You could take years off your mortgage with £75k (bit boring I know)
I'll leave the investing questions to more experienced, but I will say that sinking £25k cash into a new car would be madness 
(IMO ofcourse).
Judging by your current loan you have a decent amount of expendable cash anyway - a £25k new car can be leased for under £250/mon. The key is to get a good deal whereby you pay less than the car will depreciate during your ownership, this is due to the buying power of the leasing companies to get the car cheap from the manufacturer in bulk then pass on part of the savings; as an example the recent Golf R deal cost around £230/mon, including initial payment etc worked out at less than £7k for two years in it, if you bought one personally for £30k+ then sold after two years I'd be surprised if you saw north of £20k back.
Obviously any car will inevitably cost you money one way or another, the most sensible thing to do is pay yours off and keep it but you need some nice things in life to make the money worthwhile earning.
(IMO ofcourse). Judging by your current loan you have a decent amount of expendable cash anyway - a £25k new car can be leased for under £250/mon. The key is to get a good deal whereby you pay less than the car will depreciate during your ownership, this is due to the buying power of the leasing companies to get the car cheap from the manufacturer in bulk then pass on part of the savings; as an example the recent Golf R deal cost around £230/mon, including initial payment etc worked out at less than £7k for two years in it, if you bought one personally for £30k+ then sold after two years I'd be surprised if you saw north of £20k back.
Obviously any car will inevitably cost you money one way or another, the most sensible thing to do is pay yours off and keep it but you need some nice things in life to make the money worthwhile earning.
Sharted said:
Get an offset mortgage and stick the money in there for the time being.
You can take it back whenever you wish and you are unlikely to receive interest to match the mortgage rate (remember that interest on savings is taxed)
You can take it back whenever you wish and you are unlikely to receive interest to match the mortgage rate (remember that interest on savings is taxed)
That's an interesting option, I hadn't heard of this before nor did I know I'd be taxed on savings. as I said I've always been a spender
Just to clarify my OP, when I said 'new' car I meant new to me, I definitely wouldn't splash £25k on a brand new car. Also I fully intend to pay off the £8k car loan, and then sell my current car which is probably worth £10k. I only mentioned it because it will come out of the 75k, and to point out that I'm used to paying out almost £500 a month for a car, so a lease wouldn't feel any different.
Without turning this into a what car thread, whilst I would love to buy an M3 etc, my 20k miles per annum would mean I'd just divert the car loan payment to my local petrol station. I had seriously considered a 997 c2s, as an older car I expected the depreciation to be far lower, and I'd just need to take account of the higher running costs. However somebody put me off by explaining that they are still mileage sensitive and with my mileage likely to depreciate at a not dissimilar rate to an M3 for instance. So...I'd decided on a TTRS as they are quick but not expensive to run, and would be fine for my predominantly motorway commute.
Anyhoo back on topic, I like the idea of putting the money somewhere I can get quick access to it, therefore paying off the mortgage doesn't feel like the right option. However the offset mortgage option sounds quite interesting, as it will cut my monthly bills.
I may be being a little naïve, however the potential returns on a BTL look better than the different savings account options, in terms of monthly rents and potential increase in property value, although I realise there are the costs of letting agents, 2nd property to maintain etc.
I wouldn't ever pay the mortgage off - there is no point as it's the cheapest money you are ever going to get.
I'd set up a stocks and shares ISA for you and your wife and put 30k in there in some trackers - no CGT or tax on dividends that way.
Personally I would try a FTSE250 tracker as I think the UK markets look cheap at the moment - especially relative to the US.
I'd then put another 30k in in April when the allowance resets.
Maybe lease a car with the remainder - but make sure you get a good deal as 90% of the time you are better off buying.
I'd set up a stocks and shares ISA for you and your wife and put 30k in there in some trackers - no CGT or tax on dividends that way.
Personally I would try a FTSE250 tracker as I think the UK markets look cheap at the moment - especially relative to the US.
I'd then put another 30k in in April when the allowance resets.
Maybe lease a car with the remainder - but make sure you get a good deal as 90% of the time you are better off buying.
Edited by gregf40 on Friday 21st November 10:49
If i was in your situation I'd pay off the car loan, stick 50k into a buy to let property...the rent will more or less cover the mortgage - buy a commuter car for the 20k miles per year e.g something like this - http://www.autotrader.co.uk/classified/advert/2014...
Leaves you with around £12k if you sell your current car to enjoy...treat your wife & child to a nice holiday somewhere & a shopping spree or two, or if you want to save it - Look at ISAs
That's what I'd do.
I'd definitely use some of it for pleasure though, rather than just saving / investing it. Sure thats a good way to improve your financial situation but whats the point in having X amount in the bank in 10 years time if you haven't enjoyed your life with your family & done the things you've always wanted to do? Lifes too short!
Leaves you with around £12k if you sell your current car to enjoy...treat your wife & child to a nice holiday somewhere & a shopping spree or two, or if you want to save it - Look at ISAs
That's what I'd do.
I'd definitely use some of it for pleasure though, rather than just saving / investing it. Sure thats a good way to improve your financial situation but whats the point in having X amount in the bank in 10 years time if you haven't enjoyed your life with your family & done the things you've always wanted to do? Lifes too short!
Personally, I'd be looking at something like this :-
1) Pay off car loan
2) Shares ISA with a few "set and forget" long term funds (take advantage of 2014/15 allowance)
3) Pay down a chunk of the mortgage
4) Perhaps a long term investment of some sort for your child?
5) Something left over to play with!
I can accept some people will have different opinions regarding the mortgage, given rates are so low, but having got myself to a net zero position, the sense of a burden being lifted is palpable. I take the view that even if debt is cheap at the moment, by removing the obligation, you open up new opportunities that you'd otherwise never have had or been in a position to consider.
It's possibly heresy for PH, but a new car wouldn't enter my mind in this situation, as it's a short term pleasure fix. I'd always be looking at reducing debts before committing to a large purchase or financial obligation.
1) Pay off car loan
2) Shares ISA with a few "set and forget" long term funds (take advantage of 2014/15 allowance)
3) Pay down a chunk of the mortgage
4) Perhaps a long term investment of some sort for your child?
5) Something left over to play with!
I can accept some people will have different opinions regarding the mortgage, given rates are so low, but having got myself to a net zero position, the sense of a burden being lifted is palpable. I take the view that even if debt is cheap at the moment, by removing the obligation, you open up new opportunities that you'd otherwise never have had or been in a position to consider.
It's possibly heresy for PH, but a new car wouldn't enter my mind in this situation, as it's a short term pleasure fix. I'd always be looking at reducing debts before committing to a large purchase or financial obligation.
Most people won't be mortgage free until old age and paying the mortgage for a very long time 20 - 30 years if not longer. Being mortgage free at an early age would be a very nice feeling plus think of all that money you will save and what you can spend it on. Take a look at your next mortgage statement how much you have paid in interest and how much you have paid in capital.
BoRED S2upid said:
Most people won't be mortgage free until old age and paying the mortgage for a very long time 20 - 30 years if not longer. Being mortgage free at an early age would be a very nice feeling plus think of all that money you will save and what you can spend it on. Take a look at your next mortgage statement how much you have paid in interest and how much you have paid in capital.
Paying the mortgage off is over rated IMO.I'd rather have the money earning more elsewhere.
I'll be mortgage free in around 3 years and I can't wait, so for me it would be to pay off the car loan and then reduce the mortgage. Because, as already stated, once you have paid the mortgage off that money which you have been paying out every month for years almost forgetting about it, will all of a sudden open the options for the other things.
If you did like to be able to get access to the money for some reason I would look at the offset tracker mortgage.
Failing those, a BTL which will only make you money.
Regardless...... You're in a nice position by having this conundrum
If you did like to be able to get access to the money for some reason I would look at the offset tracker mortgage.
Failing those, a BTL which will only make you money.
Regardless...... You're in a nice position by having this conundrum
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