[Closed] mortgage vs savings/stocks

If the investments make gains than the mortgage interest costs then they are worth keeping. That's pretty simple advice! Trouble is knowing they will keep doing that into the future. 😊

There are millions of people in poverty around the world. Maybe some of them could do with some help?

All I know is that you want a balanced portfolio - some coke, some hookers, some shiny bike parts, some home electronics.

millions of people in poverty around the world.

Please....this is why I named changed. Nowhere in my orginal post was the amount I give to charity.

Please don't assume I give nothing

To answer your question, I'd go with whatever your wife suggests, she's clearly got history in making good financial decisions!

I'd also give the money to the kids, it'll have the greatest impact.

And (although obvs you may already do this) I'd give money to charities. https://www.centreforeffectivealtruism.org/

Pay off mortgage. Buy a woodland, some insurance, and allow the kids to build trails at will. You are in the south right? Nowhere is that legal to build and ride so a free-to-build wood would be great. Hold some races too. And then you have amazing trails! Win win.

Obvs coke etc..

Pay the mortgage off. It’s probably the worst pure financial advice, cos at the current interest rates that money could work a lot harder for you than that and you have no problem paying it. But hey, wouldn’t it be nice to have no mortgage?

Otherwise think about your short to medium term goals. Do you want coke and hookers every weekend for the next 3 years or once a month for the next 10?

my response disappeared.

Pay off the mortgage. Talk to an advisor. Think about some financial goals (retirement, 4 day weeks etc.)

You might get a big capital gains bill but I'd still consider selling the stock ad reinvesting. Would require research but if they've risen loads then likely not to continue forever.

You'll have big expenses like cars at some point but have that covered and you can save the £1000 a month mortgage money.

Kids, help through university is an easy one. Likely some big expenses in the near future. Help with cars, deposits, weddings etc. all likely so keep something for that. Up to you whether you let them manage that or you do it yourself.

Don’t over think it

Pay off the mortgage

Put the rest in savings to use for kids at uni when needed most (don’t hand them a wedge of cash as it might end up drunk)

Count your blessings

Thanks all.

Glad to see it is mostly coming down on the mortgage, as it's what I think is best! And yes, we are in the south.

Not sure my wife is the financial guru she appears; I think it was luck 10 odd years ago. The fact she had no idea what was in the pot shows that!

There should be no CGT, as it's all part of an ISA.

I quite like the woodland idea; the youngest is into "jumps" at the moment and is always trying to find extra space. This could do it.

I have recently taken some profits from a fund I'm in that is very very similar to SMIT. I've reinvested in sustainable technology funds and kept some for bills and shiny stuff. Mortgage rates are incredibly low but cutting that 1k a month down by 70-80% would appeal greatly to me.

Nowhere in my orginal post was the amount I give to charity.

Please don’t assume I give nothing

Then why not mention it? It's an important factor surely (or should be)?

You don't say what sort of interest rate you have on your mortgage, but if you've got a chunk of it offset, investing in something else should easily out perform what you are paying in interest.
Paying off the mortgage is obviously the safest option though, and most people would probably consider it the sensible choice.
Since you are in a very comfortable position though, personally I would go for something more high risk, or more fun.

Another vote for paying of the mortgage, you will then have a guaranteed roof over your head and £1k a month to re-invest/save. With the way the world is right now having minimal bills and a savings pot (whether that's straight cash or investments, the balance is up to you/the wife) would be the best situation for me personally. If you want to provide for the kids I'd keep the money aside for them but don't let them know, that way it's there if they need it but they won't rely on it being there.

Then why not mention it? It’s an important factor surely (or should be)?

No. To me, altruism is private. Why should anyone care what I give to charity? If I started off saying "Obviously I'll give 50% to charity", that to me is virtue signalling. It should be irrelevant to the discussion.

And of course, altruism can take many forms. Monetary value is just one.

On the other point of your post, obviously the investment rate is outperforming the mortgage rate, at the moment. It may not in future. And we can only overpay 10% a year.

As for 'more fun', I did mention no bling. I'm just not interested. I don't mind spending more on a decent product, but spending for the sake of spending doesn't appeal.

ETA - glad to see another vote for the mortgage. It greatly appeals to me. I think put my vote that way

thanks all

I'd start with when do you want to retire with what income?

Mortgage borrowing is probably the cheapest it will ever be for a generation, and savings rates below inflation. So cash in the bank is worth less year on year.

If you don't need the money now, or for ten plus years I'd be investing at least some of it, as sounds like mortgage is easily payable anyway.

If retirement is 60 or more compound interest in investments starts adding up....

You need to get on Grand Designs if you have the ability to find £190K down the back of the sofa just like that

retire with what income?

my pension is on target to be too big at 65, so I'm rowing back already. Coupled with my wife's, retirement shouldn't be an issue. Hence - almost - the need to diversify. Bung the mortgage payments into cash ISAs.

find £190K

It's come as a shock. However, investments may go down as well as up!

To me, altruism is private. Why should anyone care what I give to charity?

For the same reason they might care what the tax rates are for different earning levels - effectively the same thing.
I'm also not sure why it would be more private than how much money you have on the bank / pension / investments etc.
I'm not having a go at you personally (or anyone). I just feel that it's something a lot of people ignore (or maybe just never tell anyone), and the world would be a better place if we were more open about it and encouraged more people to think about how they can help.

Anyway, by 'fun' I don't necessarily mean wasting it on sports cars or hookers and coke, or any other 'things'. You could invest in a project you really like personally, or do a lot of traveling (post covid obvs). Time share in a ski chalet maybe? Plenty of interesting things out there.

Is there an early payment penalty on your mortgage? Consider that in your calculations.

if you don’t need the money now then consider how much you can afford to put in your pension plans in addition to your current contributions. Tax relief makes that very appealing.

Personally?

I’d consider maxing my mortgage contributions. With that paid off quicker with no penalties it’s a reduced regular outgoing.

I’d look to max out my pension contributions, taking advantage of the past few years where I was under the maximum annual threshold.

I’d review my charitable contributions to see if I could make a one-off contribution to offset tax this year.

I’d set aside more money for university living costs. And likely invest some money in trust for those difficult post-uni years, or PhD posts.

and then I’d think about what I wanted to see if it was worth taking investment gains out to get. Holiday would be nice, but unlikely to happen this year, again. PS5, but when do I get time to play (expensive) video games? Bikes, better riding weather and access to real countryside would be better.

btw, well done on your good fortune.

@glenh

okay - I get you have a different view to me. Fine. Up to you. I'm just not going to have an argument about it

The pension/bank etc details was to give background. To show there's no point putting it into pensions, or property.

For financial questions like this, a good resource is the flow chart on the "UK personal finance" reddit forum;

https://www.reddit.com/r/ukpersonalfinance/about/

Sell house give kids some doe and retire at 50.....

Lifes to short.

Just as an alternative idea for the mortgage - put cash into fully offsetting. No penalty charges and the offset balance will just chip away at the balance over the life of the mortgage. Also has the benefit of the cash still being easy to get at if required.
Other than that invest in the kids going to uni so they have potential to come out relatively debt free and can get on the property ladder early.
I assume you're maxing out ISA's?
Spend money enjoying yourself and contributing to Covid hit businesses when we can again.
And start working towards early retirement.

I'd keep it in the stock market. Maybe shuffle it around a bit if it's all in SMIT.

You look like you're reasonably comfortable, so can afford to ride the hits.

Interest rates look set to stay low for some time, I think the money would work better for you invested.

140k on mortgage, but offset down to 90k. About 1k a month, but no issues Up for renewal Apr next year

Obviously not sure how much of that £1k is going towards repayment, but £1k/month on an effective £90k mortgage seems like an awful rate of interest.

@finadvise

That's a lot. I earned decent money for 15 years but would have needed to earn probably 3 times as much to be able to pay off a £1 m home by the time I was mid-40s.

Move house (but for what? It’ll be just us in a few years)

If it was me, and assuming you're in your current house for a combination of work/schools/etc, and you're not otherwise tied to the area, I'd actually be looking to downsize to the "country". Pulling money out of the house + investments + pension pot; could pretty much retire immediately, I'd have thought.

My reading of this is that you’re not bothered about having tonnes of money, so why bother re-investing it?

Get the mortgage paid of and enjoy the feeling of flexibility when it comes to work.

How much is the mortgage actually costing? This is hinted at in some of the comments above - I am assuming a pretty big chunk of the £1000pm is capital repayment. As your assets exceed your outstanding mortgage, this means each payment is just decreasing the liquidity of your capital and does not affect your overall wealth. The mortgage interest is the cost of the extra liquidity, so you should consider if that's worth it to you - rather than think of it as reducing outgoings by £1000pm.

Some comments above talk about the security of paying off the mortgage, but providing you ensure your assets cover the outstanding mortgage, your position is the same.

My position is not too dis-similar. I still have a sizeable mortgage - this was a lifetime interest-only tracker form before the crash. I have no intention of paying off any capital anytime soon (although I could, if needed).

@scruff9252 that flowchart is great (although not really read it yet... Just in case the end stage is "then screw the plan and blow it on coke and hookers") thanks.

On the other point of your post, obviously the investment rate is outperforming the mortgage rate, at the moment. It may not in future. And we can only overpay 10% a year.

I don’t see how you can have an offset capability on the mortgage and also have a max overpayment of 10% limitation as well.

It’s far from the best way for maximising your return, but I’d take some out of the investments & pay off the mortgage, or offset it down to zero. However your product works.

I’d split the portion left in investments over more than one vehicle, with a spread of risks.

Obviously not sure how much of that £1k is going towards repayment, but £1k/month on an effective £90k mortgage seems like an awful rate of interest.

It’s impossible thing to say if you don’t know the length of the mortgage. If you’re used to looking at 25 or 30 year mortgages it might seem that way, but not everyone wants to be paying a mortgage til they retire. Hence shorter terms & bigger payments. And *far* less interest paid relative to the loan amount too, btw.

Invest in property?

Don't do this unless you want to start a business as this is what this is.

Paying off the mortgage is probably suboptimal, however, psychologically important. I'd do this first. My wife's just paid hers off and it's a nice feeling.

As to the cash, I'd go for Vanguard and a conservative, but still powerful, lifestrategy 60/40. Diversified across the stocks and bonds and globally.

Max out your ISAs each year and your kids if feeling generous. May as well make it tax free.

We're also in a similar fortunate position and so keeping it low fee, high growth and maxing the input to be financially free down the line. Also, making it just one (hugely diversified) fund makes for an easy life. No bloody tenants. Property is a stress. If you really want some property then one can get a REIT.

Well done btw.

Do nothing for now. Kids going to university is £60k+ in tuition fees. Post graduation, pay off student debts and lump sum towards first home.

As to the 'move to the country' comments - we're already in the country; small village,biggish house, decent garden, decent schools. Countryside out the back door. But we got lucky with houses, honest. Moved at the right time to the right place. We could move to a cheaper part of the country, and that's it. Possibly a bit early at the moment

Mortgage - I think the rate is about 2%. Again, no real idea (my wife is good....), but every time we remortgage, we do a shorter term to keep the amount the same. There's no point in paying less only to extend the term. There's probably only ten years left on it naturally.

The way we've always done it is we spend my money on bills, and my wife's on holidays/investments/cars. So having no mortgage will be better for me, but in the grand scheme of things? Probably not that much

But yes, I'm not bothered about money really. We have enough (that's all that matters); I've turned down jobs that could double the salary as a) more work b) more stress c) london again. Life's too short to worry about that extra 10%, or a slighly inflated job title. Work to live, not live to work. (other cliches are available on request)

Both my father and father in law retired at 55 (the golden generation!). I'm not on target for that, but 60 is a hope.

We're okay. I would prefer to help the kids more than us. And paying off the mortgage - to my mind - gives us more ready cash for them when they need it.

Possibly realising half the SMIT windfall, pay off the mortgage, and keep the rest in there might be best

If you want to provide for the kids I’d keep the money aside for them but don’t let them know, that way it’s there if they need it but they won’t rely on it being there.

Sounds very sensible. Encourage independence but with a safety net

It’s probably - as said above - not the best financial move but it would was for us psychologically to pay off the mortgage. Nice to know that you will be able to keep the roof above your head. Then use the mortgage savings to help your kids out at Uni and build up some savings/charity donations. Sounds like you have a few years until you want to retire, so you can build up some more savings. Or as said above see if you can retire early (my aim!).

I wish I had this problem...

sorry....I realise we are very fortunate

Great position to be in good for you. I dumped all my savings into my mortgage last year as a 50th birthday present to myself to get it paid off. I'm no financial guru but it's psychologically good to know whatever unexpected events life throws up worrying about accomodation or mortgage payments isn't one of them.

But yes, I’m not bothered about money really. We have enough (that’s all that matters); I’ve turned down jobs that could double the salary as a) more work b) more stress c) london again. Life’s too short to worry about that extra 10%, or a slighly inflated job title. Work to live, not live to work. (other cliches are available on request)

Both my father and father in law retired at 55 (the golden generation!). I’m not on target for that, but 60 is a hope.

You should be able to start accessing your pension pot from 57, and with some savings/investments in hand, I wouldn't write it off yet.

I get the "not bothered about money really" thing, but still - when it's just how you arrange your current finances, why wouldn't you give yourself the best chance of having more/retiring earlier?

If your mortgage interest rate is at 2%, then you need less than 1% return on your £190k for it to effectively pay for your mortgage.

Possibly realising half the SMIT windfall, pay off the mortgage, and keep the rest in there might be best

That said, that's not a terrible compromise for the satisfaction of being mortgage free.

Oh - and well done for managing to get yourself into such a good position.

I'm in a similar position (house isn't worth quite as much) and had a (planned - sale of an old house) windfall of similar size last year, chose to pay off the mortgage and be mortgage free at a young (<40) age. I like the idea of being able to say f.u. to work even though I probably never will. Its not the most efficient use of funds, but it feels good (as does having outgoings that are less than 10% of net salary).

Look at how much you can extract without hitting cgt (some this tax year, some next), assuming its not in an isa already.

I bought my house in cash 4 years ago with savings. Given how hard I have found it since to find a job/work, I feel very fortunate to not have to find money to pay rent or service a mortgage.

Note that it is a very modest terrace.

I’d have thought the best thing you could do would be to pay off the mortgage, and put lump sums aside to help your kids get a property bump start.

The mortgage may not be the most profitable option in terms of opportunity costs etc, but I think that in terms of peace of mind it’s got to be hard to beat. You seem pretty set in every other way to be honest.

I would also expect that (apart from a loving upbringing/education/guidance and support etc) the best kick start you could give your children as they enter adulthood is the opportunity to get on the housing ladder if desired. Certainly they’ll get more life benefit per pound than you will at this point.

I like the idea of being able to say f.u. to work even though I probably never will.

To some extent that depends on your outgoings regardless, specifically having kids and being married.

I used to work with many people > 40 who were basically slaves working themselves into an early grave. This was in the oilfield where the jobs were well paid (but not now!) but the lifestyle was extremely hard. Forget about work-life balance; there was only work.

Partly this was because of kids, divorces, etc., but also high spending habits and in some cases greed.

I'd probably still be doing my old job if the rotations (which got even worse after 2014 downturn) were more civilised.

Anyway, I don't have kids and TBH I'm fine doing a minimum wage job for a while. I really don't have any enthusiasm for a new career per se. I've done all that before and it just resulted in near-burnout and being made redundant. Fool me once as they say... 😀 After about 2 years in the oilfield, I quickly detached my identity from my job. I didn't need to work to massage my ego.

I can only do a min wage job because I own my house though. That saves me at least £6-8k per year, which is a massive amount on a low wage. I just need about £3k per year to pay rates, utilities, internet, etc.

Maybe I'll write novels or do a part-time PhD or something...

i used to work at London law firm, in the database side (so full access to everything)

Start aged 24 on £45k, then up £70k on qualification (aged 26). Work hard for a few years, get to be partner and start to pull in £500k. Top partners were on £2m

Yet even after 30 years of being a partner, they'd still be coming in at 7am, and going home at 9pm. Then home to the big house, to see the wife and family you never see. Couple of hours sleep, and repeat

What is the point? Seriously? You may have a lot of money, but for what?

Surprised no-one has suggested a financial advisor. They'd probably make you more money than the amount they charge you.

I'm nowhere near your level of wealth but we earn more than we spend and starting to struggle with whether to put it into mortgage/savings/pensions/coke/hookers - an IFA really helped us to work out what our priorities are, and now she's busy unravelling the crazy hodgepodge of financial stuff we've done and giving us sane and understandable choices that will help us towards our goals.

I was put in front of an IFA once and he wanted 10% of my contributions just to start a SIPP and gave me some BS about risk profiles and such. IIRC you need no qualifications to be an IFA.

I can't see the point now because there are so many products (funds of funds, etc) ready for you off the shelf. Shares, funds, trackers etc., isn't a dark art like it was pre-internet. There are no secrets now.

@glenh you don’t do enough to help people, I’ve decided knowing no facts, shame on you.

10% of all your contributions? Wow that's insane.

Mine is charging £1k, flat rate. Like you say, I don't need help choosing products, but I do need some help working out what's most effective between sticking it all in my pension (and what to do with them all), or my mortgage, or into a low risk thing or a high risk thing, and if and when I can buy a hut in the alps and/or put my daughter through uni and/or help her get on the housing ladder and/or retire early.

I thought I could do it myself, but there are too many variables, and having an expert provide some advice is good, and saves time and money, and I'd rather be riding my bike and have a bit of peace of mind.

Well, I'm just suspicious of them, although it would seem to make some sense when matters are very complex, otoh that might be a job for an accountant. It seems to me that a lot of their general advise is just stuff you can find anywhere. The specificity of moving money around, closing or opening pensions, all the tax stuff can be complex though.

Anyway jealous hat off, my answer would be whichever is more accessible so you can use the cash when you need it. Think about what you want as a family and do it, whether that being eating out more often, an extra holiday, setting up your kids, a better bike, working fewer days so you can help in the community. What ever floats your boat. Enjoy!

What’s classed as a good pension? I thought the £150k I’m working towards sounded great. Guess not.

150k is around 5k per annum in an annuity. Even with state pension on top, I'm hoping to get to more than that

150k is around 5k per annum in an annuity. Even with state pension on top, I’m hoping to get to more than that

Cheers yeah that’s not great, not really sure what my options are, still I’ll be far from the poorest in the social housing queue. Same with this shitty help to buy isa ive got, if they’d said get an S&S isa I’d have been way better off.

150k is around 5k per annum in an annuity.

Is that really all? That's only 3% - which should be fairly achievable just as returns.

I mean, even just as capital, you could take out 5k a year for 30 years.

In the OPs position I would be looking at comfort in retirement alongside tax efficiency, whilst making life easy for family.

Doesn't sound like you are going to be able to spend all that you have and will have, when you or wife dies you can inherit nil tax bands and use allowances on main properties but you may well be creating a liability for your kids.

Being in this position right now I can tell you it is really stressful (long story short I am dealing with 4 estates over 2 generations with 2 of those estates falling into one below it).

The right financial advisor / financial planner should come up with a proposal that safeguards the above and makes it easy for those left behind.

Before deciding on how to help your kids through university, read everything on the Martin Lewis site about how student loans work, especially the repayment.  They are likely to never pay it off unless in a role where they earn a high amount in their early career.  It probably won't be a good investement for you to pay it off (or pay it for them so they don't have to take it out).  If you are going to help them, treat it as a long term tax they have to pay, and put your help towards getting them a house deposit.

My thoughts...

Set up a ltd company with you and your wife as directors. Loan the company the £190k.

Use the capital as deposit/legal/stamp duty for several BTL apartments somewhere like Manchester.

You'll get a £135k appt with capital of £40k ish so you could potentially get 5 if you were prepared to stump up an additional £10k or so.

Each of these will generate a net profit of around £350 pcm. Pay yourself by repaying the loan you gave to the company (tax free) from the ltd company and you're more than covering your mortgage commitments. Make your kids shareholders when they are old enough and eventually they'll own the business, gives them a load of options.

Interest rates are at all time lows and will be for some time - it makes sense to make the money work for you whilst taking advantage of this.

Or - use it to buy a place in the Alps and rinse it for riding and holidays...

SMT is the only way for us mere plebs to gain investment exposure to Stripe right now!

Very interesting on the Student Loans thing. Slightly different in my time (and we did have [small] loans then). Basically the kids can bear the brunt of that, and I guess I'd prefer to help them with a house/flat.

But I don't think I'm up for the setting up the property business. That may give decent returns, but it sounds like a lot of work to me. And the only downside with holiday homes is you feel the need to go to the same place year after year, holiday after holiday. There's a whole world out there (if we were allowed to go). I'd prefer to be 60, and backpacking around asia with the wife again over feeling the need to back to the same spot.

As I say, anything over and above what we need would be for the kids more. We're comfortable/happy now. They'll need it more than us

I thought the £150k I’m working towards sounded great.

It's almost certainly more than the average person will end up with. IIRC the average UK pension pot is only about £60k.

It’s almost certainly more than the average person will end up with. IIRC the average UK pension pot is only about £60k

Lol! Probably leaves me in a worse position as they’ll get propped up the state whilst I’ll be told I have enough. The classic Tory tactic of letting people live just above the poverty line.

Looks like there is another similar post which might offer further advice OP.

@tails

yeah, I saw it thank you. Also seem to be on 'pay off the mortgage' idea

I'd caution greatly against buying flats for BTL especially in Manchester. They are likely to be most sensitive to any drama in the market, and from what I saw in my old job, the leaseholders should budget for expensive lifts, M&E, roofs etc., that will go wrong much sooner than they are supposed to in these new builds, and there is the prickly problem of cladding which isn't ironed out yet. Don't expect the paltry service charge to cover a new lift, for example, they will come after you with a Section 20. The flats going up are built like crap believe me.