Discussion
What are the collective thoughts on paying off a mortgage vs investing a sum of money?
Background, I have inherited about 80k and owe 75k on the mortgage. I'd love to be debt free but can't pay off mortgage immediately due to just changing to a 5 year fixed one. I would have to pay about 4k in fees if I pay it off now (I'm daft, but not that daft).
I could throw it all into ISAs and the like or buy a second property to let out with a view to selling in 5 years to recoup money.
I'm genuinely open to suggestions here, and hoping for some good advice.
Many thanks
Marcus
Background, I have inherited about 80k and owe 75k on the mortgage. I'd love to be debt free but can't pay off mortgage immediately due to just changing to a 5 year fixed one. I would have to pay about 4k in fees if I pay it off now (I'm daft, but not that daft).
I could throw it all into ISAs and the like or buy a second property to let out with a view to selling in 5 years to recoup money.
I'm genuinely open to suggestions here, and hoping for some good advice.
Many thanks
Marcus
Depends on your interest rate - but it should be relatively low.
I had cash savings and intended to clear the small amount remaining on mine, but the mortgage rate is 1.5% and I'm earning considerably more than that from a LS40, so i transferred the cash savings into instead - which keeps the money relatively liquid compared to being mortgage free.
However - I had repaid about 70% of my outstanding balance off with inheritance, which bought my monthly repayment down from £1300 to £230 a month which massively reduced stress for me.
I had cash savings and intended to clear the small amount remaining on mine, but the mortgage rate is 1.5% and I'm earning considerably more than that from a LS40, so i transferred the cash savings into instead - which keeps the money relatively liquid compared to being mortgage free.
However - I had repaid about 70% of my outstanding balance off with inheritance, which bought my monthly repayment down from £1300 to £230 a month which massively reduced stress for me.
You need to get a spreadsheet going that considers the saved interest of not having a mortgage vs the fees to pay off early.
Then you need to consider your pension I guess. I'd be tempted to:
Pay off the mortgage.
Reduce my monthly incomings to account for the lack of mortgage by increasing pension payments directly.
Doing this I would have the same money in my pocket each month, but be making healthy pension contributions BEFORE tax.
Worthy of consideration, at least.
Then you need to consider your pension I guess. I'd be tempted to:
Pay off the mortgage.
Reduce my monthly incomings to account for the lack of mortgage by increasing pension payments directly.
Doing this I would have the same money in my pocket each month, but be making healthy pension contributions BEFORE tax.
Worthy of consideration, at least.
Stiggolas said:
What are the collective thoughts on paying off a mortgage vs investing a sum of money?
Background, I have inherited about 80k and owe 75k on the mortgage. I'd love to be debt free but can't pay off mortgage immediately due to just changing to a 5 year fixed one. I would have to pay about 4k in fees if I pay it off now (I'm daft, but not that daft).
I could throw it all into ISAs and the like or buy a second property to let out with a view to selling in 5 years to recoup money.
I'm genuinely open to suggestions here, and hoping for some good advice.
Many thanks
Marcus
How much interest will you be paying on the mortgage over the 5 years?Background, I have inherited about 80k and owe 75k on the mortgage. I'd love to be debt free but can't pay off mortgage immediately due to just changing to a 5 year fixed one. I would have to pay about 4k in fees if I pay it off now (I'm daft, but not that daft).
I could throw it all into ISAs and the like or buy a second property to let out with a view to selling in 5 years to recoup money.
I'm genuinely open to suggestions here, and hoping for some good advice.
Many thanks
Marcus
On an assumption of a 40% tax payer and a pension returning 5% per annum.
S&P500 returning on average of 10% per annum.
What are the benefits of maxing out the pension over the S&P when ignoring the £20k ISA wrapper?
e.g. If we used £20k as an example amount.
£20k into pension at 5%
vs
£20k into S&P500 at 10%
S&P500 returning on average of 10% per annum.
What are the benefits of maxing out the pension over the S&P when ignoring the £20k ISA wrapper?
e.g. If we used £20k as an example amount.
£20k into pension at 5%
vs
£20k into S&P500 at 10%
Dave350 said:
On an assumption of a 40% tax payer and a pension returning 5% per annum.
S&P500 returning on average of 10% per annum.
What are the benefits of maxing out the pension over the S&P when ignoring the £20k ISA wrapper?
e.g. If we used £20k as an example amount.
£20k into pension at 5%
vs
£20k into S&P500 at 10%
Because a 40% tax payer would get 40% relief on the way in and likely pay 20% on the way out.S&P500 returning on average of 10% per annum.
What are the benefits of maxing out the pension over the S&P when ignoring the £20k ISA wrapper?
e.g. If we used £20k as an example amount.
£20k into pension at 5%
vs
£20k into S&P500 at 10%
Why assume a pension is 5% - it’s just a wrapper and could be invested in S&P500
There’s a few things like crypto that you can’t do inside a pension, but most investments are OK
Dave350 said:
On an assumption of a 40% tax payer and a pension returning 5% per annum.
S&P500 returning on average of 10% per annum.
What are the benefits of maxing out the pension over the S&P when ignoring the £20k ISA wrapper?
e.g. If we used £20k as an example amount.
£20k into pension at 5%
vs
£20k into S&P500 at 10%
Why can't you invest in a S&P500 tracker within a pension?S&P500 returning on average of 10% per annum.
What are the benefits of maxing out the pension over the S&P when ignoring the £20k ISA wrapper?
e.g. If we used £20k as an example amount.
£20k into pension at 5%
vs
£20k into S&P500 at 10%
To the OP...I guess it depends on your age, if you're a 40% rate payer and if you want to buyer a more expensive property in the future.
If you're staying in that house, a 40% rate payer and fairly young, I'd use the money to fund extra pension contributions to get you down to standard rate of income tax over the next few years.
Dave350 said:
How does that work with inherited money though, e.g. £80k inherited tax free, do you get a top up from the gov't or is it not applicable in that scenario.
Basically live off the inheritance and put the equivalent income into the pension - up to the limit. So if you would normally spend say 20k on living expenses, you can now spend the inheritance and sacrifice something like 30-35k of income instead (if 40% tax bracket) directly from gross pay into a pension - depends whether you get an NI back from your employer etc.
Dave350 said:
Sorry, used a 5% as an example as that's the average of a lot of PAYE pension funds etc.
.
For 'default' funds you aren't far off....but switch to a half decent 100% Equities fund and can easily beat 5% in your pension*. For a higher rate taxpayer, the tax relief coupled with the right Equities funds is a no brainer but usual disclaimer's apply...how long till retirement, risk tolerance and we could have a crash and then experience a couple of bad years rather than the recent bull run..
- Referring to DC rather than DB pensions
Edited by VR99 on Saturday 11th September 14:10
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