Where would you invest up to £130,000 for 15 years?

[Nocturne]

I am bloody fortunate to have some money to put away, which I'd like to grow to pay off the mortgage in 15 years' time. I think that while I have a really low mortgage rate, and a lodger due to move in to cover my monthly payments, it could make more sense to grow the money over time, than put it into a house which isn't likely to grow much in value for a while. And I'd still have a big chunk to have to pay off later down the line.

So, if you could invest £100,000-£130,000 and not need to touch it for up for 10-15 years, where would you put it that would bring the best returns in the current climate, without risking losing all/much of it?

Grateful for all and any ideas.

Tbh, I'd pay off the mortgage now (assuming no exorbitant penalties.) Very unlikely you can earn more in interest/stockmarket growth than you will save in mortgage payments. What's the rate/deal on your mortgage? Don't forget you will have to pay tax (income/capital gains) and fees on most investment options.

No penalties to pay off now. But will leave me with shortfall of up to £40,000-£70,000 that I can't make up any other way (that I can see now). Surely you can grow £130,000 by that much in 15 years? Hmm.

Mortgage rate is now set at 1.1% over base, after fixed term ended a few years ago, so is 1.6% at the moment and (I'm guessing) won't change. There are savings accounts at 3%+.

What do you think?

Pay off the mortgage and put the rest of the mortgage on a repayment basis. No risk and guaranteed to pay off the mortgage at the end pf the term. Why speculate and rick losing your money? If you money falls in value you will have a lot more to lose.
I am an IFA so I do know what i am talking about! (Sometimes)

Oops, 3%+ bonds even ...

Interest rates are low so savings rates are low too. That's a pretty big return you're looking for. I'd be paying it into the mortgage but then I'm completely risk averse (but also mortgage free because of this).

If you can do it without penalty you should use £100k to pay down the mortgage and use the rest to pay off credit card debts, car debts, overdrafts and then put 6 months of your post tax salary away in an Index Linked Savings Bond with National Savings against a rainy day such as redundancy.

Thanks for posts.

Interest rates are low, yes, and my mortgage rate is unusually low (2.6%). I thought it might be possible to achieve fairly low-risk returns that would be higher than this.

I have no other debts to pay off, other than the mortgage, and have already accounted for putting away six months' salary, plus some money for if the car breaks down, visiting overseas relatives, etc. So this amount is what's left. I can either invest it with a view to it growing sufficiently to clear the whole interest-only mortgage in 15 years' time (with low monthly payments in the meantime being covered by a lodger/my partner's contributions), or pay off most of the mortgage, and have a shortfall at the end of the term that I don't know how else I can pay.

I wondered, where my rate is so very low, if it's worth holding on to the mortgage and instead trying to grow my money. But maybe not.

Thanks again for posts. Will give this some more thought.

I'd buy property.

Don't pay off mortgage if you can earn more interest in savings.

I have a lump sum in a post office savings account at 2.9% or similar. My mortgage is at 0.5% above base rate. I have enough to pay off mortgage - but am earning more money in the bank atm...

You do have to keep an eye on interest rates though and make sure the balance is still in favour of earning interest rather than paying interest.

And don't invest more than approx £50k in one financial institution tho cos if of goes under only the first £60k ish is protected. Money saving expert explains this well (but on my phone so not easy to link for you). Also be aware that some banks have more than one name so you have to be careful about investing in sister banks.

Having said all that - unlikely you will grow your savings enough withput stock market investment for the £30k shortfall you have.

I would either reduce the mortgage or buy another property to let. You could be earning at least £500 per month on letting, possbily up to £1000 depending on where you buy, whether you can manage it yourself, etc.

remember that you have to pay tax on interest earned on savings, which will reduce the rate that you can earn below 3%, depending on your tax profile. Agree with MoreBeta's approach.

Would you like to invest it in the refurbishment of our house by any chance?

If I had £130,000 spare for 15 years I'd probably put most of it on paying off the mortgage, maybe top up the pension pot a little and then split the rest between long-term bonds and unit trusts/tracker funds. That way it spreads the risk and also increases your potential to get better-than-average rewards.

agree with some above who say pay £100,000 off your mortgage and turn the rest of it into repayment mortgage, so guaranteed to be paid off in 15 years - then I would split the rest of it into 3 lots of £10,000 and make separate investments at 3 different risk levels

I'm with haunted lunatic. there's no way I would pay off the mortgage. I would go hunting around for savings, bonds etc and to be honest would also put some in the stock market, and probably some ina s tructred product (effectively the stock market but usually with some kind of floor on the risk).

My DH persuaded me to do this when we first bought a flat and at no point since then (1996) have we not made a better return even taking into account tax on investing money than we would have done by maying off the mortgage. I am not mortgage free but my first flat cost about 1/8th of the current post crash value of my current house, and my overall level of debt is the same as it was then. So look around, look at NS+I look at different banks/bonds etc, look at the stock market and whether there are returns you can cope with taking the risk on and potentially losing money on.

You have to take some risk to get some return, and i have lost a few thousand here and there on bad investments but if i take the good returns I have to take the bad too.

When you say that you'd have 'no way of covering the shortfall' if you put the £100-130k into repaying your mortageg now, what happens to the contributions from your partner/lodger?

If you put all the money towards the mortgage debt, you'd have to pay off the remaining £40k in 15 years, say about £300/month for the 15 year term once interest is included (say £60k total repayable). Is there really no way you could manage this, especially if you are receiving rent payments from your partner and lodger?

Do you not already have an endowment policy to pay off your mortgage?

I would buy property, rent it out (so you get some income) and sell if and when house prices are at a high, house prices are not likely to drop too much so you should at least get your money back (plus what you make from rent).

I read that the op had a longer term mortgage but would use return on investment to repay it sooner. Not that she didn't have any way to cover it at all.

Sounds like your interest rate is reasonably low. Obviously it will go up when rates go up but imo (and I am NOT an IFA) it will be a while before they go up to 5-6% - and even if it goes up savings rates should go up.

FWIW, personally, I would split the fund into a number of pots, - some into cash savings (for emergencies), some into equities maybe via an accumulator investment/unit trust ; possibly some on a second buy to let (although I would urge caution on this as after capital costs the returns aren't always that great). I would use your full ISA allowance for this year and next - probably for the equities - and don't forget you will get an annual CGT allowance as well. A few other words of advice

1. use a compound interest calculator (easy to get if you google) to work out the rate of return you need to get/how much you need to pay off your mortgage in 15 years

1. For any equities go for an accumulator - so dividends are rolled up and you can then get compound interest on these too.

1. Watch out for charges for unit trusts and investment trusts. Also for IFA charges - one recently tried to flog me one with annual charges that would have come to 2-2.5% per annum - when you can get perfectly good tracker funds/investment funds that charge 1% per annum - if you do your research.

1. If you decide to buy a second property don't expect in this market that the rise in capital value alone will give the return you need. You'll probably need to apply the income received to the pot to get a reasonable return.

I am not sure how big your mortgage is - but if given the rates you mentioned, and if you use your full ISA allowance every year I agree with you that you'd do better growing your fund than paying off part of your mortgage now - although as I said, I am not a financial expert! Also, if you are anything like me - the extra cash you have after you've paid down in the mortgage would get spent not saved - so not really giving any benefit!

you will pay tax on the interest you make - so when you use a compound interest calculator you need to take that figure and minus the tax at 22% - otherwise the figure is incorrect, if you are a higher tax payer then take of more. Also don't forget in the 15 years tax may go up or down - so take that into account as well

You don't pay tax on interest saved by paying it of the mortgage - so you do 't need to fact in this calculation when doing the sums

you won't necessarily pay tax on the interest - it depends if you are utilising your personal exempt amount with other sources of income. to the extent that you are liable to basic rate tax the rate is 20% not 22%.