Pay off chunk of mortgage (renewal) or keep in savings? Amounts included.

[SpinningTops]

Thinking ahead to our renewal next year.

We’ve had a 10 year fix at 2.5%.

We will have approx £230k left on mortgage. House value probable £700-800k.

We will have about £150k in savings which we can either put into the mortgage or keep.

Whatever we did we’d keep at least £20k back for emergencies.

Any opinions on the best distribution?

But that only applies if the debt is more expensive than the savings or investments which is often quite easy to avoid.

I’d max out your ISAs for the year (if not done so already), pay the rest off the mortgage but hold back £20,000 for emergencies. Are your premium bonds maxed out already?

You are unlikely to get 2.5% fixed again. If it was me I would see what I would need to pay my mortgage down by to keep repayments the same at the v least.
As a starting point.

The first thing to do is look at mortgage rates and savings rates. Can your savings generate more for you than you are paying in interest? Remember to factor in the tax on any income generated this way.
The next thing to do is to look at how much your mortgage will increase by when your rate goes up (as it inevitably will). Do you still have enough leftover each month to top up savings? Remember, too, that DC tend to get more expensive.

I had one with Accord mortgages until last month

Pay it off and get the rest gone before kids go to uni.

I also recommend an offset. Mine is with Barclays and all of my accounts are there, offset against the mortgage.

If you are not a fan of stocks and shares then reducing your mortgage to 80k would be very wise.
And as other have suggested, start building up savings again with the money you are not spending on your mortgage. Or overpay on what is remaining if you are able.
I didn't know offset mortgages were around again. I had that decades ago and it was good. They are also an option.

Because both of you are very risk adverse, put most of that chunk (at least 80%) into paying off the mortgage. It's a guaranteed benefit, the others all carry higher risk of not benefiting you as much or not at all.

@SpinningTops If you are risk adverse and savers, like I am, then I would pay £100k off the mortgage and keep £50k in ISAs etc.

The key bit is what you do going forward with your income. I would look at slightly overpaying on your next fixed rate mortgage. https://www.moneysavingexpert.com/mortgages/mortgage-overpayment-calculator/
I would also keep on saving but perhaps look at a mix of cash and stocks and shares ISAs or pensions.

My advice is to do a financial audit looking towards retirement.

• state pension forecast https://www.gov.uk/check-state-pension
• work out current pensions and projected pensions. Note: one thing I have learnt is think about survivor pension. What pension would each of you have if the other dies. If it’s very unequal then look at balancing out as the survivor could end up struggling for pension income.
• work out current expenditure and project for retirement - this will give you a good idea of what pension provision you will need.
• University for DC - what help would you like to give them.

Make memories, being savers it can be hard to dip into savings for “fun”. Honestly, I wish I had been a bit braver and spent a bit more on travelling when I was younger and fitter.

I think the most efficient thing would be to pay down the mortgage but keep the mortgage term as it is, then pay the "savings" from the reduced mortgage into a pension and benefit from the tax relief, whilst maintaining your current level of joint income.

The higher rate tax payer should pay more into the pension to maximise the tax relief benefit. Ideally do not pay higher rate if you can afford not to.

Do that for twenty years....

Drip feed monthly into a S&S ISA and then forget about it! Even £100 a month for starters-. They do go up and down, but if you do it monthly you smooth things out. Plus, when the stocks go down I just drip feed more in! When Trump affected the markets in April my pot was down 8%, and so I just dripped more in (weekly). Now it's up 12%!

If you pay off a lump sum, try and keep your payments the same to pay it off even quicker.

Honestly, in 20 years time when you're fed up of working and can retire early you will thank yourselves.