Stocks and shares ISA or pay off mortgage?

[moneyquandry]

Would very much value thoughts on my dilemma please.

Should I put £140,000 towards paying off a mortgage on a second home (rate 1.68%) or invest in a stocks and shares ISA (feeder over 7 years) while the market is cheap?

The second home was purchased for our children (likely to sell in the next 5-7 years).

Currently had advice from St James but from the little I've read on here people are saying avoid? Any advice as who to use instead?

The market has rallied since March, but who knows what may happen in the future and seven years isn't a huge amount of time to ride out the bumps in the market.

I don't rate any financial advisors to be honest - they don't have a crystal ball. Do what you think is best for your circumstances, which may involve one or other of the above or a combination of the two.

The financial adviser may be able to assist with your tax planning, CGT on second home etc.

I would not be so quick to write off ST James I would listen to them, request their fees and charges in writing. Then do the same for a few IFA's.

Make sure you ask for the total ongoing fees. Adviser fee, platform costs, fund managers fees etc.

When my parents did the same the only adviser stating total fees up front was the St James adviser. He reduced his fees as the standard 5% fee is obscene!

The IFA left off their ongoing charge of 1% on the quotes so looked cheaper.

If they will not provide their TOTAl ongoing costs then walk away.

What are your objectives and needs for this money, what are you actually trying to achieve here?

It sounds like you want to know whether you are going to get higher capital growth on your £140,000 by exposing it to the stock market over the next 7 years, or whether you will have higher growth from the value of your second home increasing. The extent to which either will grow depends on different factors, and your appetite for the amount of risk you are willing to take to chase potentially higher returns is very important. Can you afford to lose any of the current values?

If you pay off mortgage debt how much is this saving you in monthly repayments? Can you add that to a Stocks & Shares ISA?

When you sell the property in 7 years time, what are you intending to do with the money then? How might these plans be affected if you have lost, say, 20% of the value of the capital?

Thank you for the feed back, much appreciated.

The second property is to be used as an asset to be divided between two children and the S&S ISA would be used for our retirement in the future, not sure when that will be (we are early 50's).

I suppose psychologically, repaying the mortgage appeals to us more but I'm wondering if it might be better financially to put this money towards our retirement. We currently overpay the mortgage by 10% each year but would be in a position next year to pretty much clear it if we don't tie up the money in the S&S ISA.

We need a good financial adviser to advise us on this and several other factors but don't know where to find that person! I do try to read up as much as I can on the subject but find it confusing and I'm not sure I have the nerve to go through with the more risky option. But then again, I wonder if perhaps we should be doing that to enable us to retire more comfortably versus helping the children.

I think perhaps it might come down to what we "feel" best although this might not be the wisest in terms of finances/gains. If we did pay off the mortgage then yes, we could save the extra and put that into an ISA but it will take us a while to build it all up again.

It's always a hard decision and really depends when you might want access to the money and your personal situation. With interest rates low by paying off your mortgage you are in effect maximising your annual growth opportunities to 1.68 % per year. An ISA pot is good to have in retirement as the money grows income tax and capital gains tax free and can provide a tax free income alongside your pension however you can only put in £20k per person per year so it will take 3 tax years for this to be fully invested in the ISA wrapper, a unit trust feeder could be the answer in the meantime. Of course there is no g'tee of growth but you have time until you retire to give it a very good chance. Which is best for you will depend so much on your personal circumstances, your tax band and which tax allowances you are currently using and which you have available to use. Putting more money in your pension and benefitting from tax relief is another option, again a lot to consider and it all depends on your circumstances.

Unless you are actually inheriting an ISA that already has £140,000 in it, you will only be able to put £20,000 into one. The allowance is £20k per tax year for them. The rest you will have to have in some other sort of general investment account, or possibly in a private pension.

Some couples have an ISA each (you can't have joint ones, they are Individual Savings Accounts) and that would mean that they could each put £20k into their own ISA, so £40k could be invested that way.

Is your mortgage still in any penalty period? If it is then that can be costly, so I would factor that in when deciding whether or not to clear it just yet.

Get a good IFA. They can really help.

General advice seems to be investments over mortgage as interest rates are so low you’d expect a better long term return that way. But it depends how long it’s likely to be until you need the money plus the psychological factor of paying off a mortgage. If it feels good then maybe it’s worth it.

It sounds like you are thinking along the lines of “if we put the money into the house now, it is lost to us” - is that really the case?

Unless the house is in the kids’ names already, surely when you sell it, you can decide whether to keep some of the proceeds to help towards your retirement, rather than giving it all to your children?

In the meantime you can invest whatever is saved from mortgage payments into your ISA as well.

We had a similar dilemma when we got an inheritance a few years ago - should we put into our ISAs for retirement or drip feed into kids ISAs towards house deposits (no second home involved).

Our kids (young adults) each have a large inheritance of their own that they are drip feeding into ISAs so we ended up paying half of their monthly drip feed for a while, whilst maximising ours. We can always pass some more of our ISA money onto them when we retire if we wish but for now it gives us options for early retirement.

As for financial advise, we have never bothered with it - I was referred to a FA by friends many years ago - he advised me to pay into a personal pension rather than company FS pension. Totally wrong decision which fortunately I overturned at my next employment.

We have done very well since then without any advise. We also know of a St James advisor who is one of richest people in our locality!!

Loads of good advice on here , if you can get a good personal recommendation for a FA - St James or IFA thats a good option - I highly recommend our guy Kevin Shaw at Circle Wealth Partners - he has been great with us, very communicative, very direct and has given us solid advice. Ive DM'd you some more detail