Invest £70k or pay off some of my mortgage?
Discussion
Assuming the sale of my maisonette completes soon, I will have £70k+ left over after paying off the mortgage.
I have another property that I now live in with a £110k mortgage at a rate of 6.09% fixed until Aug or Sept 2009.
Is there a better way to invest £70k (I will use some money to furnish my new place) or is it best to pay off most of my other mortgage? I have checked moneysupermarket among other sites only to find the best rates are for deposits of £100k+. I think there may have been a 6.10% but that's too close to my mortgage rate.
Another concern I have is finding out that my account has been wiped which I guess is a very good reason to use the money to pay off some of my mortgage.
I won't invest in property since unless they will appreciate by more than 6.09% (which I doubt very much) I will be worse off. And I won't be buying an expensive car until i've bought a house with a garage....so please, please don't show me links to any nice motors until my money has been invested.
Can anyone help?
I have another property that I now live in with a £110k mortgage at a rate of 6.09% fixed until Aug or Sept 2009.
Is there a better way to invest £70k (I will use some money to furnish my new place) or is it best to pay off most of my other mortgage? I have checked moneysupermarket among other sites only to find the best rates are for deposits of £100k+. I think there may have been a 6.10% but that's too close to my mortgage rate.
Another concern I have is finding out that my account has been wiped which I guess is a very good reason to use the money to pay off some of my mortgage.
I won't invest in property since unless they will appreciate by more than 6.09% (which I doubt very much) I will be worse off. And I won't be buying an expensive car until i've bought a house with a garage....so please, please don't show me links to any nice motors until my money has been invested.
Can anyone help?
Personally I think the property investment party is over, at least for the time being. Given your figures I wouldn't want to take a risk with the £70k.
I do tend to be quite cautious but I think I'd be looking at paying it off the mortgage (if you can without penalties/having to remortgage at a higher rate?) and then using the amount I was saving on mortgage payments to overpay the mortgage (assuming it's repayment) ASAP to try to get the figure down thus making the purchase of a house with a garage more likely!
The other big advantage is that you can't fritter it away especially if you leave a direct debit in place to automatically overpay the mortgage!
I do tend to be quite cautious but I think I'd be looking at paying it off the mortgage (if you can without penalties/having to remortgage at a higher rate?) and then using the amount I was saving on mortgage payments to overpay the mortgage (assuming it's repayment) ASAP to try to get the figure down thus making the purchase of a house with a garage more likely!
The other big advantage is that you can't fritter it away especially if you leave a direct debit in place to automatically overpay the mortgage!
Unless you can find a good home for the investment that will earn a higher rate than your mortgage (and don't forget that investing it will have to be net 6.09% not gross!) then paying off your mortgage seems the sensible route. That's unless you're willing to invest in something risky with potentially larger gains.
You could buy another property, there's a distinct possibility that rates may come down, and follow the US, but they're holding out for the moment.
Was this your main residence? Are there any capital gains implications?
You could buy another property, there's a distinct possibility that rates may come down, and follow the US, but they're holding out for the moment.
Was this your main residence? Are there any capital gains implications?
soprano said:
But if you invest in property you will also (hopefully!) be receiving a rental income from that property, so it is not just appreciation in value that you need to consider.
In theory. You might alternatively be faced with real world theory bashing hazards which turn the cosy world of TV landlordism squarely on it's backside, exposing you to the appalling costs and hassles of cupboard crap removal, general redecoration woes, the 3 months' lost rental period and the bag of sand for court order/eviction costs to turf out the filthy dogs and then wondering whether it was all such a good idea...
If you still require a mortgage of >£70k, then get an offset mortgage and offset the £70k. This will mean that you are overpaying the mortgage, clearing it early and effectively earning an interest rate greater than you would recieve from any investment.
In the long term (c10 - 15yrs) you will then be mortgage free, with greater than £70k in the bank - not a bad position to be in.
These are just my opinions, you need to do your own research and make decisions based on your personal circumstances, maybe contact a financial advisor.
In the long term (c10 - 15yrs) you will then be mortgage free, with greater than £70k in the bank - not a bad position to be in.
These are just my opinions, you need to do your own research and make decisions based on your personal circumstances, maybe contact a financial advisor.
5-6 years ago my (ex) IFA advised me not to pay off my mortgage as the investments would do better.
I wish I'd ignored him. I've just paid off my mortgage but paid five years of interest I didn't need to. On balance, it's more expensive to borrow money than to save it. And of course, the IFA makes money on commissions, whereas he doesn't if it pays off the mortgage.
I wish I'd ignored him. I've just paid off my mortgage but paid five years of interest I didn't need to. On balance, it's more expensive to borrow money than to save it. And of course, the IFA makes money on commissions, whereas he doesn't if it pays off the mortgage.
Edited by Simpo Two on Tuesday 27th November 17:50
Let's be clear, even if the BoE does lower its rates, there is no reason to think that cut will be reflected in new mortgage rates any time soon.
As has been said, when you're looking at investment options, you've got to consider the tax this may incur. If you plonk £70k in the bank, and you're a higher rate tax payer, you're going to loose 40% of the interest which makes a huge difference to your return. If you want the same sort of risk free investment as money on deposit, you might want to consider buying government bonds. The tax implications are better too.
Paying off debt is usually a good idea. Off the top of my had, the only thing that might be better would be to shove a load of money into your pension. You may be able to gross it up against income tax you've paid in previous years ... i.e. you may be able to get a tax rebate and add that to your pension too. If you could do that, the effective rate of return you'd be earning would be pretty huge.
As has been said, when you're looking at investment options, you've got to consider the tax this may incur. If you plonk £70k in the bank, and you're a higher rate tax payer, you're going to loose 40% of the interest which makes a huge difference to your return. If you want the same sort of risk free investment as money on deposit, you might want to consider buying government bonds. The tax implications are better too.
Paying off debt is usually a good idea. Off the top of my had, the only thing that might be better would be to shove a load of money into your pension. You may be able to gross it up against income tax you've paid in previous years ... i.e. you may be able to get a tax rebate and add that to your pension too. If you could do that, the effective rate of return you'd be earning would be pretty huge.
As has been mentioned the tax has a massive effect. Assuming you're paying tax at 40%, your 6.09% mortgate rate is equivalent to 10.15% interest in a savings account. (60% of 10.15% is 6.09%)
10% return on capital is pretty good for something that is "unworked" - e.g. you buy shares and forget about them. You can always get much higher returns working your capital yourself.
Paying off your mortgage is nice and simple, zero hassle, and a relatively good return. It all comes down to your personal circumstances.
£70k will also buy an Aston V8
10% return on capital is pretty good for something that is "unworked" - e.g. you buy shares and forget about them. You can always get much higher returns working your capital yourself.
Paying off your mortgage is nice and simple, zero hassle, and a relatively good return. It all comes down to your personal circumstances.
£70k will also buy an Aston V8
Thanks all for your replies. Sorry I didn't reply earlier but I have been busy.
The money I have made has largely come from buying a place needing a lot of work and doing the work myself. Of course property prices have increased a lot anyway but I made quite a good return for little (of my lenders) money. I also got a redundancy pay out that I used to put a slight dent in my residential mortgage.
Bought for £93k in 2001 selling for £178k now. I also bought another flat 2 1/2 years ago for a steel (imo, worth more £40k now, again with a little work, ok I wanted to kill myself acouple of times
) that is only a few doors away from my other place which I let out for 2 years. I made pretty much nothing on the rent but it covered the mortgage repayments+ground rent/insurance etc. I didn't plan to buy it as an investment but to sell my first place and move into it but the vendor had tenants already that he didn't want to let down....ironically they let him down (and me at first) by moving out before completion but a friend asked to rent it (thus I charged less but had peace of mind).
Now I am living in my btl, not to evade cgt, but because it has more living space despite being on one level instead of two. This all sounds good and I know there are people in worse positions than me but the kind of properties I aspired to owning have increased ridiculously over the last year (more than £50k) whilst my 2 flats combined have increased by probably £30k combined.
For teh record I don't earn enough to be taxed 40% but I hope taht will change soon. But regardless of my earnings it seems that there isn't much of an option that will return more than 6.09%...unless I take risks with something I know nothing about. So I think i'll just use the money to reduce my mortgage and then overpay each month - which I can do as long as I have >£1 come Aug/Sept 2009 - which I will.
Thanks again everyone for your advice
edited the timescale that houseprices have well outperformed my 2 flats.
The money I have made has largely come from buying a place needing a lot of work and doing the work myself. Of course property prices have increased a lot anyway but I made quite a good return for little (of my lenders) money. I also got a redundancy pay out that I used to put a slight dent in my residential mortgage.
Bought for £93k in 2001 selling for £178k now. I also bought another flat 2 1/2 years ago for a steel (imo, worth more £40k now, again with a little work, ok I wanted to kill myself acouple of times
) that is only a few doors away from my other place which I let out for 2 years. I made pretty much nothing on the rent but it covered the mortgage repayments+ground rent/insurance etc. I didn't plan to buy it as an investment but to sell my first place and move into it but the vendor had tenants already that he didn't want to let down....ironically they let him down (and me at first) by moving out before completion but a friend asked to rent it (thus I charged less but had peace of mind).Now I am living in my btl, not to evade cgt, but because it has more living space despite being on one level instead of two. This all sounds good and I know there are people in worse positions than me but the kind of properties I aspired to owning have increased ridiculously over the last year (more than £50k) whilst my 2 flats combined have increased by probably £30k combined.
For teh record I don't earn enough to be taxed 40% but I hope taht will change soon. But regardless of my earnings it seems that there isn't much of an option that will return more than 6.09%...unless I take risks with something I know nothing about. So I think i'll just use the money to reduce my mortgage and then overpay each month - which I can do as long as I have >£1 come Aug/Sept 2009 - which I will.
Thanks again everyone for your advice
edited the timescale that houseprices have well outperformed my 2 flats.
Edited by M400 NBL on Tuesday 27th November 22:06
clubsport said:
Surely, the correct answer to your predicament is to buy that Noble M400 and fill the space in your fantasy garage??
The problem is not having a garage of any type. I've already had a car (Fiat coupe) keyed whilst parked in a permit zone....I wouldn't sleep with a Noble parked where a vandal would no doubt find it amusing to run a key down it.I reckon i'm 2 years or so away from having garage & a Noble
I did think of buying one and keeping it at friends/my Dad's....when my mate bought an SL55 AMG recently...but it wouldn't make financial sense at the moment.
coyft said:
Take advantage of your bank!! Unbelievably they have an equitable product. It's called the offset mortgage, basically it gives you all the benefits of paying off your mortgage but you get to keep the cash! :-)
You will not get a safer, better return on your money. If you see one of those rare cast iron guaranteed opportunities in the future you will have instant cash to capitalise on it.
I agree; offset.You will not get a safer, better return on your money. If you see one of those rare cast iron guaranteed opportunities in the future you will have instant cash to capitalise on it.
I have paid off my off-set mortage but kept the offset mortage account open. I don't pay any interest but being self employed now it is comforting to know that given the current 'credit crunch' have a potenial draw down of £90K should I want to move house and the banks turn on the self employed as I dont have to go back to them cap in hand for a new mortage.
Gordon Brown said:
coyft said:
Take advantage of your bank!! Unbelievably they have an equitable product. It's called the offset mortgage, basically it gives you all the benefits of paying off your mortgage but you get to keep the cash! :-)
You will not get a safer, better return on your money. If you see one of those rare cast iron guaranteed opportunities in the future you will have instant cash to capitalise on it.
I agree; offset.You will not get a safer, better return on your money. If you see one of those rare cast iron guaranteed opportunities in the future you will have instant cash to capitalise on it.
I have paid off my off-set mortage but kept the offset mortage account open. I don't pay any interest but being self employed now it is comforting to know that given the current 'credit crunch' have a potenial draw down of £90K should I want to move house and the banks turn on the self employed as I dont have to go back to them cap in hand for a new mortage.
When I eventually move again I will seriously consider an offset mortgage. Is that what the one account is?
coyft said:
M400 NBL said:
Gordon Brown said:
coyft said:
Take advantage of your bank!! Unbelievably they have an equitable product. It's called the offset mortgage, basically it gives you all the benefits of paying off your mortgage but you get to keep the cash! :-)
You will not get a safer, better return on your money. If you see one of those rare cast iron guaranteed opportunities in the future you will have instant cash to capitalise on it.
I agree; offset.You will not get a safer, better return on your money. If you see one of those rare cast iron guaranteed opportunities in the future you will have instant cash to capitalise on it.
I have paid off my off-set mortage but kept the offset mortage account open. I don't pay any interest but being self employed now it is comforting to know that given the current 'credit crunch' have a potenial draw down of £90K should I want to move house and the banks turn on the self employed as I dont have to go back to them cap in hand for a new mortage.
When I eventually move again I will seriously consider an offset mortgage. Is that what the one account is?
If you are considering paying te penalty then instead of paying it off, switch to an offset.
I can't remember the penalty if I leave early but I think it's 5% for the 1st year.
Hold on here - you rent out a flat which covers all the mortgage repayments service charges & insurance & have a 9-5 job and your not on 40%.... come off it. Rent average £12k p.a. 40% rate kick in at £38k so if that were the case you have an PAYE income of less than £26k (and then you you need to take off interest you earn from taxable savings accounts & take off dividends).
Anyway ignoring that - with the £70k I would recommend (given no fees & if there were fees it would be a slightly different case) paying into your mortgage now as currently you have no specific planss for the cash apart for a sum which would be used for new furniture, then if you decide on investing in something in the future you can then increase your mortgage (effectively taking it back out - but in the mean time saving the mortgage interest).
One other thing you say a £70k profit from the sale of the property - that is not your principle residence so you will be liable for capital gains tax so say £70k less the £9k annual allowence means that you will be taxed @ 40% on the Capital Gain of £61k so a tax charge of £25k.
Remember also that with your Flat if you have a buy to let mortgage on it and you living in it and the Bank finds out then they can call in the mortgage. The other thing is you say the other property have made a paper profit of circa £30k well again there is capital gains tax to be paid on this and if you sell both places in the year try to sell one in each tax year so you benefit of the annual allownece thus not having to pay tax on £18k. However even doing that this £30k you mention you will have to pay £8.4k capital gains tax.
So many people dont realise this after seeing the TV shows and then when that self assessment form comes through either you asking them for it or they give it to you its a nasty shock.
You may be fully aware of the above but im sure plenty of others might not be so its of no harm to highlight it.
Anyway ignoring that - with the £70k I would recommend (given no fees & if there were fees it would be a slightly different case) paying into your mortgage now as currently you have no specific planss for the cash apart for a sum which would be used for new furniture, then if you decide on investing in something in the future you can then increase your mortgage (effectively taking it back out - but in the mean time saving the mortgage interest).
One other thing you say a £70k profit from the sale of the property - that is not your principle residence so you will be liable for capital gains tax so say £70k less the £9k annual allowence means that you will be taxed @ 40% on the Capital Gain of £61k so a tax charge of £25k.
Remember also that with your Flat if you have a buy to let mortgage on it and you living in it and the Bank finds out then they can call in the mortgage. The other thing is you say the other property have made a paper profit of circa £30k well again there is capital gains tax to be paid on this and if you sell both places in the year try to sell one in each tax year so you benefit of the annual allownece thus not having to pay tax on £18k. However even doing that this £30k you mention you will have to pay £8.4k capital gains tax.
So many people dont realise this after seeing the TV shows and then when that self assessment form comes through either you asking them for it or they give it to you its a nasty shock.
You may be fully aware of the above but im sure plenty of others might not be so its of no harm to highlight it.
Welshbeef said:
Hold on here - you rent out a flat which covers all the mortgage repayments service charges & insurance & have a 9-5 job and your not on 40%.... come off it. Rent average £12k p.a. 40% rate kick in at £38k so if that were the case you have an PAYE income of less than £26k (and then you you need to take off interest you earn from taxable savings accounts & take off dividends).
Anyway ignoring that - with the £70k I would recommend (given no fees & if there were fees it would be a slightly different case) paying into your mortgage now as currently you have no specific planss for the cash apart for a sum which would be used for new furniture, then if you decide on investing in something in the future you can then increase your mortgage (effectively taking it back out - but in the mean time saving the mortgage interest).
One other thing you say a £70k profit from the sale of the property - that is not your principle residence so you will be liable for capital gains tax so say £70k less the £9k annual allowence means that you will be taxed @ 40% on the Capital Gain of £61k so a tax charge of £25k.
Remember also that with your Flat if you have a buy to let mortgage on it and you living in it and the Bank finds out then they can call in the mortgage. The other thing is you say the other property have made a paper profit of circa £30k well again there is capital gains tax to be paid on this and if you sell both places in the year try to sell one in each tax year so you benefit of the annual allownece thus not having to pay tax on £18k. However even doing that this £30k you mention you will have to pay £8.4k capital gains tax.
So many people dont realise this after seeing the TV shows and then when that self assessment form comes through either you asking them for it or they give it to you its a nasty shock.
You may be fully aware of the above but im sure plenty of others might not be so its of no harm to highlight it.
Thanks and I agree not enough property investers realise as I found out when asking a few questions on www.taxationweb.co.uk when I first bought my btl.Anyway ignoring that - with the £70k I would recommend (given no fees & if there were fees it would be a slightly different case) paying into your mortgage now as currently you have no specific planss for the cash apart for a sum which would be used for new furniture, then if you decide on investing in something in the future you can then increase your mortgage (effectively taking it back out - but in the mean time saving the mortgage interest).
One other thing you say a £70k profit from the sale of the property - that is not your principle residence so you will be liable for capital gains tax so say £70k less the £9k annual allowence means that you will be taxed @ 40% on the Capital Gain of £61k so a tax charge of £25k.
Remember also that with your Flat if you have a buy to let mortgage on it and you living in it and the Bank finds out then they can call in the mortgage. The other thing is you say the other property have made a paper profit of circa £30k well again there is capital gains tax to be paid on this and if you sell both places in the year try to sell one in each tax year so you benefit of the annual allownece thus not having to pay tax on £18k. However even doing that this £30k you mention you will have to pay £8.4k capital gains tax.
So many people dont realise this after seeing the TV shows and then when that self assessment form comes through either you asking them for it or they give it to you its a nasty shock.
You may be fully aware of the above but im sure plenty of others might not be so its of no harm to highlight it.
I lived in my first flat from Nov 2001 until June of this year so I won't be liable to cgt....and wouldn't be until 2010 (36 month rule) even if I decided to rent it out.
I have already remortgaged from a btl mortgage to a residential mortgage which was an improvement of almost 2%. I now live in my former btl and plan to for a while..at least until I find a house in the right location at the right price...or I may just stay here for a long time, pay off the mortgage and save, all depending on the property market. As I understand it, as my principle residence I will be exempt (according to the experts on taxationweb) ..as long as I am not seen to be living here just to evade cgt. Both my properties are on the same street so it's not like some investors that pretend to be living in a former btl hundreds of miles away and then seemingly moving back to their previous address.
A quote from landlord zone:-
There is no minimum time to live in the property to qualify for CGT PPR exemption. This test depends on the quality of your residence and not the length ...
My gains will be fully covered by exemptions and reliefs.
For the record I used to charge little over £8k/year for rent and I don't earn a thing in taxable savings sinse I have always overpayed my mortgage....and unfortunately I don't quite earn enough to pay 40% tax...hence my fantasy garage doesn't even compare with most PH members actual garage
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