Clear mortgage or invest.

Age:40
Spouse’s/Partner's age:40

Annual gross income from employment or profession: 75k
Annual gross income of spouse:70k

Monthly take-home pay:6700 monthly combined take home pay.

Type of employment: e.g. Civil Servant, self-employed
Both civil servants

In general are you:
(a) spending more than you earn, or
(b) saving?
Saving.

Rough estimate of value of home:300k
Amount outstanding on your mortgage:180k with 18 years remaining.
What interest rate are you paying? 3.15

Other borrowings – car loans/personal loans etc
None.

Do you pay off your full credit card balance each month? Yes.
If not, what is the balance on your credit card?

Savings and investments: 257k from savings and inheritance.

Do you have a pension scheme? Yes, both.

Do you own any investment or other property?
No

Ages of children:8 and 9

Life insurance: yes.

What specific question do you have or what issues are of concern to you?
We have significant savings combined with an inheritance and are wondering if we are better served clearing our mortgage now and saving the remainder or paying a portion into the mortgage and investing the rest. As career civil servants we have pension schemes in place but would like to retire early and could consider putting money into avcs or an equivalent if considered sensible.

Any advice welcome.

You should not invest directly. If there is scope to contribute more to your pensions tax-efficiently, do so.

Otherwise, pay off your mortgage.

You are getting a 3.15% tax-free , risk-free return by doing so.

Brendan

Thanks Brendan. Appreciate the feedback.

@Brendan Burgess
I would agree with your suggestion to pay off the mortgage.
Once that's paid off there is time for investing

Can I just clarify your statement

"You should not invest directly"

Is that in only in these circumstances or a general rule?

Do you discourage for example picking a particular stock. Go with sp500 index?

moneymakeover said:

"You should not invest directly"

Click to expand...

Sorry for not being clear.

What I mean is that he should not invest in his own name until his mortgage is cleared.

If he is investing vis a pension fund before paying off his mortgage, that is fine. I consider that to be "indirectly"

Brendan

Brendan Burgess said:

Sorry for not being clear.

What I mean is that he should not invest in his own name until his mortgage is cleared.

If he is investing vis a pension fund before paying off his mortgage, that is fine. I consider that to be "indirectly"

Brendan

Click to expand...

I would lean towards paying off the mortgage before investing but what do you say to the argument that, even after tax is paid on your gains, you would earn more investing in a fund than clearing the mortgage early. I have heard arguments going both ways and I'm trying to definitively fall one way or the other!

money_man said:

even after tax is paid on your gains, you would earn more investing in a fund than clearing the mortgage early.

Click to expand...

He is paying 3.15% on his mortgage. Let's say he switches and reduces it to 2.5%

To get 2.5% , after tax, he would need to get 5% return after costs.

This is possible. But so also is a fall of 50%.

By paying off the mortgage, he is getting a 2.5% return after-tax and without taking any risk.

Paying of the mortgage is clear.

Brendan

Paying off the mortgage would still leave a healthy chunk of cash plus the extra savings each month with no house payment.

This one is straightforward , clear the mortgage, max out pension AVCs for both of you for this last year and this year and of course going forward. Keep a smallish emergency fund (both public servants) in instant access savings or state savings, then invest the rest. You're in a great position, congratulations, enjoy life!