Should I pay £20k off the mortgage or invest it in my pension?

by sonicmiche 12 December 2008 |

8 comments | Love

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I have about £50,000 to invest but do not know what to do for the best. I have a good sized pension which I pay into every month (I am 45); 2 new ISAs and a rather large but affordable mortgage with 18 years to run. I have no option to move to an offset mortgage at the moment. I also have £15k in savings in the bank.

I was thinking of doing one of the following things but have no idea of the pros and cons of these routes:
- pay money off the mortgage
- pay more money into my pension
- buy some shares
- pay more into my ISA
- buy a buy-to-let using the equity from my house to fund a new flat
- buy a plan for a new house not yet started and hope to make money on it when it's built and/or rent it out

Can anyone offer any advice? My financial advisor just tells me to do what I think is best and is now hassling me to put £10k immediately into my pension - my £20k would give me £5k back in tax relief and provide £25k into my pension...

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Comments (8)

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landlordray posted
Keep the cash in the present climate, you may not know what is round the corner. If your employment is 100% secure ( state employer ), then consider equity investments as over the medium term this should be a good time to start going back into the market with well chosen income and growth funds at the moment. use ISA were you have allowances available.
Posted on 12 December 2008 | Love 0 loves Report
0

trustjmh posted
Pay your mortgage up to the limit that they don't charge you for. (have to read small print)

Donate surplus to charity.
Posted on 12 December 2008 | Love 0 loves Report
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meita posted
You have obviously looked into different options and are seriously thinking this through. You should compare the different possibilities on several dimensions:

- return on investment: basically, the interest rate you can get, (or, don't have to pay, if you chose to repay your mortgage; or, the net letting income). Calculate taxes into this for real comparison.

- flexibility: is your equity available when/if you need it?

- security1 (interest): is it variable interest or fixed interest you are getting? Do you need to know in advance how much you will be getting/paying, or are you prepared to gamble a bit?

- security2 (equity): is the equity you are buying at risk of losing value (for example, housing property at the moment... some shares... bank going bust)?

- capital gains potential: If you cut out the risk to your equity, you will usually also lose the potential of making gains on your capital.

- risk spreading: Is your equity all in the same place? One bad stroke of luck and you lose it all...

Then, you need to decide your personal preferences, according to your own situation and needs. Do you need flexibility? Do you want risk, for the chance of higher returns? etc.

You could also keep your cash and wait for a bargain to turn up, which is only available to cash buyers. But I would still make sure your cash is earning at least some interest in the mean time!

Good luck with your decision making!
Posted on 12 December 2008 | Love 0 loves Report
879

MikeGG1 posted
Nowadays you can fund your pension scheme by up to 100% of earnings in any one year so there is no hurry to top that up. It is better to retain flexibility.

Keep out of property for at least 6 months.

The following are in priority order:

1) Top up your cash ISA to £3600.

2) Top up Equity ISA to £3600 in monthly instalments 4 x £900.

3) Hold back 6 months's income on a maximum of 90 days notice.

4) Pay off mortgage if the rate exceeds 5%.

5) Invest in an All-Share Tracker on a level monthly subscription basis.

If you wish to consider property, get a fixed rate bond for 6 months or a year on that portion.
Posted on 12 December 2008 | Love 0 loves Report
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msmoneywise2102 posted
What a pleasant situation to be in, sonimiche! Landlordray has obviously not been keeping up with the news, state jobs (read any civil service, council, MOD, NHS jobs) are no longer safe. The Government has been cutting jobs and closing offices across the country in the name of 'efficiency initiatives'. However, that is not the question - the most efficient use of your available cash is. I agree that pensions are an excellent bet providing your pension provider is a good and reputable one. You'll get tax relief on your payments at your highest rate of tax, and be able to profit from the improvement in markets. This will come, maybe in 5 years maybe earlier or later, but everything is cyclical. Your 15k in bank savings is probably not doing much at all, right now. You don't say what the rate on your mortgage payments is, but I'll bet if you put that into paying off some of your capital, you'd be a lot better off, unless you have an excellent tracker, i.e. one below base rate. If you find a bargain then a buy to let would make sense, providing you could get tenants. I make a point of putting at least 15% of my savings into relatively high risk investments, and these have done very well, even in this current economic climate. Whatever you do, good luck.
Posted on 13 December 2008 | Love 0 loves Report
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msmoneywise2102 posted
What a pleasant situation to be in, sonimiche! Landlordray has obviously not been keeping up with the news, state jobs (read any civil service, council, MOD, NHS jobs) are no longer safe. The Government has been cutting jobs and closing offices across the country in the name of 'efficiency initiatives'. However, that is not the question - the most efficient use of your available cash is. I agree that pensions are an excellent bet providing your pension provider is a good and reputable one. You'll get tax relief on your payments at your highest rate of tax, and be able to profit from the improvement in markets. This will come, maybe in 5 years maybe earlier or later, but everything is cyclical. Your 15k in bank savings is probably not doing much at all, right now. You don't say what the rate on your mortgage payments is, but I'll bet if you put that into paying off some of your capital, you'd be a lot better off, unless you have an excellent tracker, i.e. one below base rate. If you find a bargain then a buy to let would make sense, providing you could get tenants. I make a point of putting at least 15% of my savings into relatively high risk investments, and these have done very well, even in this current economic climate. Whatever you do, good luck.
Posted on 13 December 2008 | Love 0 loves Report
6

ogram23 posted
I would suggest that paying into your pension is the last thing you want to do. As you have a good sized pension at the moment I would not want to incur more fees in this area and returns are not ALWAYS AS GOOD AS PREDICTED.

You should consider paying off your mortgage but maybe waiting until interest rates rise. Meanwhile after investing max in ISA invest in high rate bond for say 1 year. This will give better interest than you would save on your mortgage. After this year you can see where the mortgage rates are going and then decide.

Remember your mortgage interest is going to last for the term and great savings can be made by paying off early.
Posted on 13 December 2008 | Love 0 loves Report
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cltsrgnsn posted
Are you still looking to invest, if so there are options that will offer you fixed rates of returns and some as high as 8.46% please contact me if you would like some more informtaion.
Posted on 07 May 2012 | Love 0 loves Report

Should I pay £20k off the mortgage or invest it in my pension?

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