invest or pay off mortgage

Hi,

From peoples experience is it better to pay off a lump sum off your mortgage or invest it and hope for a better return?
I have a 140K to invest (180K if include SSIA), originally planned to reduce mortgage from 380K/33years (1855/month) to 240k/25years (1405/month), but was wondering if it is possible to get a better rate by investing in funds, apart from mortgage we have no other loans and monthly income would be 4K..i would like to see if seeing the full picture or am i missing something..would it be woth my while getting advice on the matter. peoples opinion/experiences welcome.

Cheers,
J

Reducing the mortgage is a risk free return. You may do better than that in the short, medium or long term by investing but there is no guarantee (and usually no guarantee on your capital either). What is the best option really depends on more details about your personal financial and other circumstances than you have posted. Have you read the AAM and IFSRA guides to savings & investments which both cover this issue in some detail? They are linked from the key posts thread pinned at the top of the Savings & Investments forum.

Reducing your mortgage seems a good idea as is a very high percentage of you net monthly income(Eddie Hobbs reckons should try to reduce mortgage when greater than 40% of net monthly income). Other option is to invest part and pay some off mortgage e.g 100k off mortgage and invest 40-60k. Keep some e.g 20k in cash for rainy day.

If you are in employment and paying the higher tax rate it is more beneficial to use your cash to pay your current mortgage monthly and substitute it for the payments from your current income . Then use the increased disposable salary to make AVC contributions to your pension scheme where the state almost doubles your money by granting full tax relief.

HighFlier said:

'it is more beneficial to use your cash to pay your current mortgage monthly and substitute it for the payments from your current income '

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A bit confused by this can you explain.

If you commit current earnings to a pension plan you get full grossed up tax relief. So by freeing up some of your salary to commit to a pension you effectively invest approx 170 euro for every nett post tax 100 euro you invest.

I know it's a bit pedantic and money is money but strictly speaking the tax relief is on current year earnings so you should be able to demonstrate which funds you invested in the pension scheme.

Also this is why the Govt. scheme for standard rate tax relief on reinvestment of your ssia was irrelevant because you could achieve the same by income substitution.

If you just put the money into a fund then you would have quick access to the money in case your circumstances change, and you need to pay down some of your mortagge, if you have less income in future. The trouble with this approach is that their are not many tax advantages to it, you will pay gains tax as normal on the fund when you sell units.

You could work how much you pay at 41% rate of tax, and once you can claim the full percentage available to your age group invest what you can in a pension plan and get the tax breaks, which are substantial over a number of years. You can claim for the previous year and present years tax. The trouble with this is you are locked into a pension until you are older, so if you were under pressure paying off your martgage later on you can't touch this pension money.

You could as someone previously stated substitute by paying down your mortgage, but use the saving on your current cashflows to pay more to your pension instead, this sounds very sensible.

A lot depends on how much you pay at the top rate, and under how much financial pressure you are under now and will be in the future to make the mortgage payments.

get advice,you can get leaflets on its your money web site. if it was me i'd invest a lump sum of 50k, knock off 100k of mortgage, put 15k in pension fund ( 7.5k each), 10k in rabo saving acc,up your mortgage repayments, keep saving and enjoy the rest. p.s you get 1 euro for every 3 if you put in to a pension fund ( 7.5k = 10k ) thats a nice return all ready 5k between the 2 of ye, terms and conditions apply

thanks for all the replys, i used the mortgage calculator and if i reduce my mortgage to 250K, i would be able to reduce the term to 15 years with monthly payments of approx 1400, also i would save 300K (380-80K) on interest if i was to keep my current payments and term of mortgage, this would also leave me with the ability to save 1K a month aswell, so i think i will go down this route, if my calculations are right.. i have separate savings for a rainy day as i'm a ltd company and have a company pension..