Long term savings V paying lump sum into mortgage

[DarrellRivers]

My feeling in this climate is that we would be better off paying any lump sums that I am currently saving into our mortgage (which is vvvv large)
Is this always the case, or are there anyother recommnedations that people would suggest?

[melontum]

It's a very complicated thing that people will waffle about on the finacial advice websites (like MotleyFool).

Personally, when I had the choice, I went for mortgage I figured out at the time that the stockmarket would have to do better than average maybe it was as little as 10% above average, but still better than the long term average growth rate -- for the stockmarket to be the better bet. On the other hand, I could lose it all on shares... or even lose value in a Buy-To-Let property investment... or lose out even if invested in gold or fine wine! Whereas paying off the mortgage was NO RISK, and likely to do as well as if not better than the alternatives.

So it was a no-brainer for me, and I'm so glad I did -- it was DH's idea to throw every scrap of spare income at our mortgage and we paid it off unbelievably quickly.

[melontum]

Oh, but the obvious other things still stand: do you have some emergency savings in case of unemployment? Or do you have any higher interest debts (like credit cards, personal loans) that should be paid off first?

[Hulababy]

From next year DH will be recieving large lump sums once or twice a year. Our plan is to in the first few years to use parts of those lump sums to pay off lumps of the mortgage. We are planning on getting an offset mortgage/bank again also, as this will help with all this and will ultimately save us money as well. For us the plan is not to pay off our mortgage completely, but to reduce it and then move to a large house eventually.

We will be chatting with our financial advisors nearer the time to go over it in more detail though.

[Millarkie]

It depends on your mortgage type and interest rate to a large extent.
As melontum said, it is recommended that you have access to enough savings to be able to survive for 6 months in case of unemployment, and also any debt at a higher interest rate than the mortgage should be paid off first.
If that's all done then if your mortage rate is v. high it is worth paying some of it off...however, savings rates are rising even on pretty safe type savings accounts (first direct is launching an 8% savings account in November) so if your mortgage interest rate is significantly lower than the amount you can earn (NET) in interest in an account then you would be better off saving.
We have just got to the point where we have built our savings up to complete our 'emergency fund' so we are now over-paying the mortgage (our mortgage allows a certain amount of overpayment each month with no penalties and we can draw it back at any point- we choose it partly because of this). If savings interest rates increase a bit more we may split this amount between mortgage overpayment and savings account.
Or you could look into moving your mortgage to an 'offset' style one, so your savings will reduce your mortgage whilst remaining easily accessible.

I don't 'do' stocks and shares - I am very risk averse

[FCH]

It does rather depend on your tax situation too. If you are a higher rate tax payer then any other investment that is not tax efficient would have to return your mortgage interest rate plus the tax liability, whereas the savings made by paying the money off the mortgage are tax free. Of course if you have not used your ISA allowance then you can do this and the tax thing is not relevant.

We have a policy of 50/50 split in our household - any spare cash goes half off the mortgage, half into ISAs... This is only because we are indecisive though!

[DarrellRivers]

Thanks
Yes, DH tends to be the more risk taker with his savings, so I think I will opt for the mortgage as is lower risk, tax efficient and then spreads our savings around a bit.
I have emergency funds tucked away in ISAs and we have no higher interest debts other than mortgage(which I would love to see smaller quite frankly)
I am also risk adverse I think

[Millarkie]

Oooh yes, forgot about the tax thing - I am still lower rate so savings might be able to work for me.