advice needed-pay off mortgage?

[guffaux]

I have a windfall that would pay off my small mortgage (25K) and leave me a little over;

I have no savings as I've been paying off the mortgage at 750 per month.

I have no other debt

My pension at present should be 30K ish lump sum and 1.5k per month income.

If I pay off the mortgage, I would save the 750 per month to build up savings for my retirement, which I hope will be in 7 years

Or should I put the windfall into savings and just keep paying the mortgage, as interest is so low at the moment?

I'd increase my monthly payments to a thousand and really save carefully so I could replenish my windfall.

I would pay off the mortgage for sure. That way, whatever happens you have a roof over your head. You can save after that.

What are the early repayment charges on your mortgage?

What sort of savings do you have in mind? If the savings rate after tax is less than the mortgage interest rate, (probably the case) then in strictly financial terms you should pay the mortgage off, after making sure you have enough savings to last you a few months in case of disaster.

If you were thinking of a more speculative savings / investment, then it depends how confident you are about your stock picking.

Any charges for paying off your mortgage early? I don’t like the idea of no savings personally

Our IFA told us to pay off our mortgage as soon as we could.

We did it about 18 months ago.

When the Covid shit hit the fan, we were like THANK FUCK.

Financially I'm risk averse, so I'd be looking at a cash ISA

I live a fairly modest life- dont own 'things'. have self-catering holiday in the UK, no expensive hobbies,.

This is the first time in my life I have ever had the opportunity to properly save- previous small savings of 100 per month have accumulated until needed for house repairs etc

I just dont want to waste this bit of good fortune

Tbh I don’t think there’s a risk whatever you do.
Savings are great to always have, but equally if you paid off your mortgage and something expensive came up you could take credit and pay it off quickly with your income with no mortgage

I assume you gave no other debt, op.

I got a slightly smaller windfall a few months back due to a tax rebate. I split it and put about 70% with a broker into a low/medium risk cash fund; I put the remainder into a credit union account so I have holiday money put aside for this and next year. This means I have increased my pension on the one hand, I have my holidays sorted, and I have improved my summer cash flow due to having the holiday money set aside. So I now also transfer additional freed up cash into the mortgage. There is no penalty for me to do this. During lockdown, I have been paid fully by work (working full time) but my outgoings have gone down a lot (no extracurricular activities, no commute). I am risk averse so I would prefer to have some savings and some mortgage rather than no savings and no mortgage.

I would pay off the mortgage and then pay more into your pension from your salary (from the savings from not paying the mortgage). That way you will benefit from tax relief on pension contributions.

What's the relative interest rate? I'd only pay off the mortgage if I couldn't beat the interest rate with savings, which I can at the moment, so I'm not bothering to overpay my mortgage, even though I could pay off about half of it.

But possibly also look at putting money into your pension, due to the tax advantages, but also consider the investment risk if it's a defined contribution product.

Perhaps do a bit of a mix, some savings, some off mortgage, some in pension, and maybe also consider if any big purchases are appropriate.

You never know, you might be able to afford to bring your retirement age forwards, go part time, or spend some of the money on home improvements (windows, roof etc?) or even a big holiday when things go back to normality while you're still fit enough to enjoy it. I know several people who have either died or suffered life changing illness shortly after retirement, so have been unable to do a lot of the things they were saving for retirement like adventurous travel.

If you're saving money, look at non ISA savings first, the interest rate is usually higher. ISAs haven't had a tax or interest rate advantage for the majority since the introduction of the personal savings allowance a few years ago.

ooh, that's interesting, I'd just assumed Ian SA was the most recommended savings scheme.

Re. pension- I have 40+ years' contributions to a public services scheme, my salary has only been decent for the last 10 years or so, so would voluntary contributions be the way to go.

In the event of my death it goes to my partner, but a lower monthly payment than my pension payment would be, would he benefit more from a savings pot?

an ISA, - dont know who Ian SA is

If you have a full public sector pension, especially if final salary, there might not much point adding to it, I don't know if you're allowed to go over the maximum, you might have already paid for as much benefit as you can get. You'd have to check with them, because there are many schemes and it will depend on your age and other factors.

One thing you might have to think about is saving 'too much'. It sounds like you have enough money to be comfortable and aren't a spender, so you might want to think about what you want to do with your money? Is there anyone who you would want to inherit? Is there anything that you'd like to do but have thought 'too expensive'. If you're set for retirement and being mortgage free, you could always spend some of the money.

Someone I know advocates a 'rule of thirds' ie a third on the past (debts, so your mortgage) a third on the future (savings/pension) and a third for now, so if you want something that you might initially consider frivalous, like a car, holiday, something for your house (kitchen, bathroom, decoration) you could always do that?