Mortgage settlement vs. Investment
Discussion
Hi
Long time member posting incognito for privacy - I have metastatic cancer which I will not dwell on here but I am after some opinions from this area of the forum which I've found very useful over the years, not least for the advice on critical illness cover which I never expected to have to call upon, but now have.
The policy is about to provide a lump sum which was always intended to cover the mortgage in full so my wife and son can at least eliminate that payment from the household budget (with the psychological benefit of owning the house outright) should the worst happen. The immediate reaction was to look at paying the balance of £125K in full, but I am trying to work out with a slightly fuzzy chemo brain what my best options are.
The mortgage has 15 years to run, currently we have a deal at 1.5% until June 2025 and have been over paying the usual £790pm at £1103pm with the aim of reducing the balance a bit by the end of the deal so we can reduce the impact of what are likely to be higher rates by then. I can overpay by max 10% of balance per year, and the early repayment charge is 2.5% currently, down to 1.5% in July 2024, then nothing at the end of the current deal.
I'm trying to work out if using the same £125K in another way for the same period could benefit us - e.g. split into 2/3 high interest accounts. My employer is extremely supportive, I am still getting paid and am a higher rate tax payer, I already have an ISA (£11K) and another 20k in a 6% 2-year fixed savings account, so will likely be getting a tax hit via PAYE (I don't have to do self-assessment currently) and have to factor that into any returns I may get. My wife is also higher rate but could possibly use her ISA allowance as she doesn't have one currently.
I'm not about to keel over as far as I can tell, but obviously with treatment for another few months and maybe a 60-70% chance of short to medium term positive outcome (pension planning for personal benefit now seems somewhat optimistic!), I'm trying to weigh the benefits of incurring ~£3K early repayment charges vs using the lump sum. And of course the possibility of a rapid deterioration in my health if fate sends me the other way.
If anyone wants to offer an opinion on it, please do, I intended to try to make a spreadsheet but am not currently in the right mindset for sums! I have access to IFA also but there is a wealth of knowldge on here and it will ease my mind just to discuss it.
Long time member posting incognito for privacy - I have metastatic cancer which I will not dwell on here but I am after some opinions from this area of the forum which I've found very useful over the years, not least for the advice on critical illness cover which I never expected to have to call upon, but now have.
The policy is about to provide a lump sum which was always intended to cover the mortgage in full so my wife and son can at least eliminate that payment from the household budget (with the psychological benefit of owning the house outright) should the worst happen. The immediate reaction was to look at paying the balance of £125K in full, but I am trying to work out with a slightly fuzzy chemo brain what my best options are.
The mortgage has 15 years to run, currently we have a deal at 1.5% until June 2025 and have been over paying the usual £790pm at £1103pm with the aim of reducing the balance a bit by the end of the deal so we can reduce the impact of what are likely to be higher rates by then. I can overpay by max 10% of balance per year, and the early repayment charge is 2.5% currently, down to 1.5% in July 2024, then nothing at the end of the current deal.
I'm trying to work out if using the same £125K in another way for the same period could benefit us - e.g. split into 2/3 high interest accounts. My employer is extremely supportive, I am still getting paid and am a higher rate tax payer, I already have an ISA (£11K) and another 20k in a 6% 2-year fixed savings account, so will likely be getting a tax hit via PAYE (I don't have to do self-assessment currently) and have to factor that into any returns I may get. My wife is also higher rate but could possibly use her ISA allowance as she doesn't have one currently.
I'm not about to keel over as far as I can tell, but obviously with treatment for another few months and maybe a 60-70% chance of short to medium term positive outcome (pension planning for personal benefit now seems somewhat optimistic!), I'm trying to weigh the benefits of incurring ~£3K early repayment charges vs using the lump sum. And of course the possibility of a rapid deterioration in my health if fate sends me the other way.
If anyone wants to offer an opinion on it, please do, I intended to try to make a spreadsheet but am not currently in the right mindset for sums! I have access to IFA also but there is a wealth of knowldge on here and it will ease my mind just to discuss it.
Worked out everything as comprehensively as I could. Needed to compare payments and further interest until July 2024 and 2025 vs saving across those time periods, tax on those savings returns at 40% and the mortgage payment penalty.
Works out £126k in Jan ‘24 to conclude the mortgage, £125390 to save for 6months and 124900 for year (assuming 5% savings interest).
So hardly much in it and paying it off in a few months feels the right thing to do?
Works out £126k in Jan ‘24 to conclude the mortgage, £125390 to save for 6months and 124900 for year (assuming 5% savings interest).
So hardly much in it and paying it off in a few months feels the right thing to do?
Very sorry to hear.
Ultimately a mortgage at 1.5% is very cheap money and you can do better and make a little money, but is it worth the stress/faff while doing everything else? There probably is a lot of comfort in owning the house.
In your situation if you wanted to try get some return form cash, I could recommend you (what I have done) get some UK gilts, Tn25 or so will pay 4.83% to Jan 25, then hop maybe tg25) these are guaranteed return, capital gain and income exempt, backed by uk gvmt (risk of default is basically zero, and you’d need crossbows and tinned food, not cash, if that happened). In this scenario you’re making money, but it’s not a lot..
4.8-1.5=3.2% interest margin BUT I just re read you have a 1.5% ERC, so effectively it’s 3.2% margin + 1.5% ERC gets you back to a 4.8% return to June25.
4.8% of 125K is 6k p.a., around 9k cash to mid 25 from today.
Only you can decide if that’s worth it for you and family or not. Tbh before I saw the ERC, for me in your shoes, I’d probably have just paid off so the Mrs had security and didn’t need to worry, but the ERC would change it for me, so I’d hold the bonds on a hargraves lansdown (no fee to hold bonds, just trading fee IIRC) and lock in nearly 10k pure cash in 18months.
It’s as risk free money on the table as I can think of. I really really wouldn’t be investing in equities or anything that can lose money
(gilts can lose money only if you don’t hold to completion - you’d need to understand exactly what you were buying, I’d advise you to think of it as Locking up your money until gilt maturity - if there was any risk you’d need this cash to pay your min mortgage repayment before June25 then you’d have a potential slight risk, I can explain it if it’s a direction you’re interested in but it’ll take a while and only worth it if you’re interested!)
Whatever you do best of luck.
Ultimately a mortgage at 1.5% is very cheap money and you can do better and make a little money, but is it worth the stress/faff while doing everything else? There probably is a lot of comfort in owning the house.
In your situation if you wanted to try get some return form cash, I could recommend you (what I have done) get some UK gilts, Tn25 or so will pay 4.83% to Jan 25, then hop maybe tg25) these are guaranteed return, capital gain and income exempt, backed by uk gvmt (risk of default is basically zero, and you’d need crossbows and tinned food, not cash, if that happened). In this scenario you’re making money, but it’s not a lot..
4.8-1.5=3.2% interest margin BUT I just re read you have a 1.5% ERC, so effectively it’s 3.2% margin + 1.5% ERC gets you back to a 4.8% return to June25.
4.8% of 125K is 6k p.a., around 9k cash to mid 25 from today.
Only you can decide if that’s worth it for you and family or not. Tbh before I saw the ERC, for me in your shoes, I’d probably have just paid off so the Mrs had security and didn’t need to worry, but the ERC would change it for me, so I’d hold the bonds on a hargraves lansdown (no fee to hold bonds, just trading fee IIRC) and lock in nearly 10k pure cash in 18months.
It’s as risk free money on the table as I can think of. I really really wouldn’t be investing in equities or anything that can lose money
(gilts can lose money only if you don’t hold to completion - you’d need to understand exactly what you were buying, I’d advise you to think of it as Locking up your money until gilt maturity - if there was any risk you’d need this cash to pay your min mortgage repayment before June25 then you’d have a potential slight risk, I can explain it if it’s a direction you’re interested in but it’ll take a while and only worth it if you’re interested!)
Whatever you do best of luck.
Edited by stuthe
on Friday 24th November 08:48
on Friday 24th November 08:48Sorry to hear about your illness
You haven’t overpayed your 10% this year (assume calendar) so I would immediate do that (£7k), then in January you can pay another 10% (assume roughly £11k so you are down to £109,000 ish balance with no penalty.
I would then run the erc versus investment from this point
Either pay it off then in January or wait until July on a lower erc and hold it as cash easy access, or easy access isas (if you can be bothered you could get £80000 into cash isas between now and mid April). You won’t earn much interest and it will be over two tax years and if split between two of you. I don’t think anyone will be chasing you for interest payments
You haven’t overpayed your 10% this year (assume calendar) so I would immediate do that (£7k), then in January you can pay another 10% (assume roughly £11k so you are down to £109,000 ish balance with no penalty.
I would then run the erc versus investment from this point
Either pay it off then in January or wait until July on a lower erc and hold it as cash easy access, or easy access isas (if you can be bothered you could get £80000 into cash isas between now and mid April). You won’t earn much interest and it will be over two tax years and if split between two of you. I don’t think anyone will be chasing you for interest payments
The other factor is as soon as you pay off the mortgage you are £1100 pcm better off (your current repayment).
I think that’s what I would do, overpay as much as possibly this and next calendar year and then clear it in January paying the fee. Not paying the mortgage in Feb, Mar and April will cover the erc and from May you will be £1100pcm better off. You will also have the peace of mind of the family owning the house outright and not having complex investments etc… or tax measures on investments etc…..
I’d also be talking to the mortgage provider and outlining your situation and asking for any help with the erc in the circumstances.
I’d then review the current mortgage payment and how to invest this I.e isa’s, child isa, pension, or just enjoying yourselves as a family
Good luck
I think that’s what I would do, overpay as much as possibly this and next calendar year and then clear it in January paying the fee. Not paying the mortgage in Feb, Mar and April will cover the erc and from May you will be £1100pcm better off. You will also have the peace of mind of the family owning the house outright and not having complex investments etc… or tax measures on investments etc…..
I’d also be talking to the mortgage provider and outlining your situation and asking for any help with the erc in the circumstances.
I’d then review the current mortgage payment and how to invest this I.e isa’s, child isa, pension, or just enjoying yourselves as a family
Good luck
Sorry to hear of your illness.
You can make the maths stack up to support either side of the argument, but my feeling is that during a period of stress and change, your family would benefit more from having a large weight removed in the form of the house payment.
The sense of security owning outright is not to be underestimated.
You can make the maths stack up to support either side of the argument, but my feeling is that during a period of stress and change, your family would benefit more from having a large weight removed in the form of the house payment.
The sense of security owning outright is not to be underestimated.
Use your ISAs, tax free interest is better than paying tax. NS&I are excellent.
Some thoughts.
Get better & treat the family, you are going through this together.
Review household expenditure when income changes (off sick pay for example). Will you need funds to see you through, review citizens advice, will retaining funds or paying mortgage stop you from applying for state benefits if you are remain unwell for a prolonged period of time.
Repaying a mortgage is a wonderful idea, but if you run out of cash what pressure will that put on yourself/household.
Return to work? Age wise how old will you be, will you/do you want to return to the same role, will you have a similar eanring potential? Will this capital see you through if you wished to change career?
CIC cover, was this paid to you directly, or is it in trust or is it somewhat assigned to the mortgage company (unusual but not unseen).
Lots to review in your own time, please keep well.
Some thoughts.
Get better & treat the family, you are going through this together.
Review household expenditure when income changes (off sick pay for example). Will you need funds to see you through, review citizens advice, will retaining funds or paying mortgage stop you from applying for state benefits if you are remain unwell for a prolonged period of time.
Repaying a mortgage is a wonderful idea, but if you run out of cash what pressure will that put on yourself/household.
Return to work? Age wise how old will you be, will you/do you want to return to the same role, will you have a similar eanring potential? Will this capital see you through if you wished to change career?
CIC cover, was this paid to you directly, or is it in trust or is it somewhat assigned to the mortgage company (unusual but not unseen).
Lots to review in your own time, please keep well.
Thanks again all.
CIC is settled and burning a hole in our joint account, I’ve left it there as joint accounts have £170k FSCS protection.
I’ll have to factor in what renewing the CI cover might be should I be ‘cured’ when treatment finishes next year as no doubt premiums could rocket, however right now I anticipate returning to work, I’m 43 and pretty healthy overall.
I already have an isa albeit 11.7k so can be topped up, and we transferred 10k into my wife’s recently so my understanding was we could top those up tax free but then all other savings would be taxed (we both are 40% band).
I’ve overpaid the mortgage by ~300 each month for the last year as the rates shot up, but I need to check cumulative % so far and hadn't thought to put a chunk in as the 10% again in Jan as well. Then also talking to them suggesting some consideration on the circumstances (& giving them the balance back to lend to
Someone new at 5%+!) could lead to a win. Thanks for all the advice really helpful
CIC is settled and burning a hole in our joint account, I’ve left it there as joint accounts have £170k FSCS protection.
I’ll have to factor in what renewing the CI cover might be should I be ‘cured’ when treatment finishes next year as no doubt premiums could rocket, however right now I anticipate returning to work, I’m 43 and pretty healthy overall.
I already have an isa albeit 11.7k so can be topped up, and we transferred 10k into my wife’s recently so my understanding was we could top those up tax free but then all other savings would be taxed (we both are 40% band).
I’ve overpaid the mortgage by ~300 each month for the last year as the rates shot up, but I need to check cumulative % so far and hadn't thought to put a chunk in as the 10% again in Jan as well. Then also talking to them suggesting some consideration on the circumstances (& giving them the balance back to lend to
Someone new at 5%+!) could lead to a win. Thanks for all the advice really helpful
Edited by DETTRB26 on Sunday 26th November 09:55
I’d probably be tempted to leave the mortgage for now while it’s on such a low rate.
Would probably do the 10% overpayments.
NS&I the rest, premium bonds fully loaded you & wife £100k & the rest into a 1yr guaranteed growth bond 6.2% iirc
If you really deteriorate health wise you could have your money within a few days and pay down the dues.
Plan to pay the mortgage when it drops off the 1.7% fix.
Hope you get on alright and live long, sometimes the treatment can work.
Would probably do the 10% overpayments.
NS&I the rest, premium bonds fully loaded you & wife £100k & the rest into a 1yr guaranteed growth bond 6.2% iirc
If you really deteriorate health wise you could have your money within a few days and pay down the dues.
Plan to pay the mortgage when it drops off the 1.7% fix.
Hope you get on alright and live long, sometimes the treatment can work.
I wouldn't pay off the mortgage until the rate exceeds what you can get in short term savings accounts i.e. when you're out of your fixed rate deal, use ISAs, National Savings (Premium Bonds rate is an average of 4.65% tax free atm) and other savings accounts, consider putting non ISA investments in your wife's name if she is a basic or non taxpayer. Have a meeting with your IFA and they will go through the options of investing rather than paying the mortgage off, it's not for everying but should be considered depending on your attitude to risk.
Concentrate on getting well too, take it from me the critical illness payment takes the financial pressure off big time. My other half had cancer 25 years ago and her critical illness policy paid out £170K, it was one of the best gits of advice I have given (I'm an IFA). We paid our mortgage off (rates were higher then), she bought herself a new car and invested the rest. I always remember waking up one night and she was awake next to me, I asked her what she was thinking about, expecting her to say 'doom and gloom I've got cancer' she actually said ' I'm thinking about what to spend my money on!' That's the difference a CIC payment can make.
Concentrate on getting well too, take it from me the critical illness payment takes the financial pressure off big time. My other half had cancer 25 years ago and her critical illness policy paid out £170K, it was one of the best gits of advice I have given (I'm an IFA). We paid our mortgage off (rates were higher then), she bought herself a new car and invested the rest. I always remember waking up one night and she was awake next to me, I asked her what she was thinking about, expecting her to say 'doom and gloom I've got cancer' she actually said ' I'm thinking about what to spend my money on!' That's the difference a CIC payment can make.
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