Overpay mortgage or invest?

[muddyboot86]

Good morning

I just wrote all this out, but it hasn’t posted for some reason, so sorry if I’ve ended up posting twice. And sorry this is a long post, I wanted to try and make sure I'd covered everything.

My DH and I are in a very fortunate position to have some spare cash, and I’m not sure what the best thing to do with it is.

We currently have around 30k in cash, and we are able to save around 3k per month so this is going to continue to grow. We own a house, which we rent out. Every year we have been overpaying the mortgage as much as possible without penalty, and are about to do so again (around 11k I think, just waiting on final figure). What I’m trying to decide is what to do with the remaining cash. I had thought to overpay over our allowance and pay the 1% penalty to reduce our repayments - I know this isn’t the smartest thing to do, but it’s surely better than it sitting in the account doing nothing?

We are both in our earlyish 30s, no kids yet but trying to start a family. We rent our current flat but this is paid for by DH’s company as part of a relocation package. In a couple of years we’ll probably want to move into our “forever home” near where we live now, but this doesn’t make sense now as we are making profit off our house and not paying rent. But it does mean that we wouldn’t want the money tied up for more than about 2 years.

We already have quite a bit of cash invested in some fairly risky shares - some have done very well, others have not. We’re happy with this and to let it ride for another couple of years but would like to invest this money a bit more safely as we can see the point where we will want to use it.

We both work full time and have pensions with our employers which are pretty good (I think) and will pay out when we are at retirement age (whenever that will be).

I’ve been reading a bit about investing in funds as something less risky than buying more stocks ourselves, but I’m not quite sure how to pick/who to invest with.

Any advice/ideas/recommendations would be welcome. Thank you

Paying money into a pension is almost always more beneficial than paying extra on a mortgage, mainly due to tax relief and the length of time invested should provide a higher return than the extra costs incurred through having a mortgage for longer.
I know you say you think you have a decent pension but make sure, will your employer match increased contributions for example.

As to just normal investments outside of a pension that's a more difficult one to judge as it depends on so many variables regarding what you are investing in. Over time (15+ years) I would say it should outperform the mortgage but without more detailed study it's impossible to say.

The upside of paying off a mortgage quicker is it does make you feel good, far more than investing in a pension that is somewhat invisible and seems years away.

Thanks @kamelo. Making additional contributions into our pensions is something we've considered. One is a civil service pension and the other is more generous than most (employee contributes 6%, employer contributes 9%). In a couple of years we will definitely add additional to the civil service pot if we have spare cash. For the moment though because we are planning to buy a bigger house and sell our existing we'd rather not have the cash tied up until retirement.

I've made the penalty free mortgage payment and I'll continue to research what lower risk investment funds/bonds might be worthwhile.

You only get a penalty for over paying more than a certain amount when you are in a fixed term interest rate.

If you are not in a fixed term interest rate then you can pay as much as you like off with no penalty.

I personally would prioritise getting shut of the mortgage. You could always sell it for a much cheaper property when you are older if you dont have a great pension

You can make one off lump sum payments into your pensions whilst continuing ti make monthly ones up to certain limits depending in your circumstances/size of pension.

When we were holding some cash pending a tax bill we put it in premium bonds. Yiu can hold £50k each. If you buy blocks together it increases the chance of winning. In a 6 month period we won the equivalent of 8% per annum!!