Should I clear my mortgage or invest money?

Q My wife and I have a current account/mortgage which suits us as we overpay the sum required each month quite substantially. This way we see our mortgage drop each month and can be quite flexible with how much extra we pay.

When this was taken out we put all of our savings into it and now only have one account running. We are about to sell half of our garden to a property developer. The sum we have arranged will clear our mortgage apart from around £10,000. When development is about to start I will be relocated with my job and we will let our present house out for at least a year, living in rented accommodation in the new area.

After about a year, possibly two, we will move back to our owned property and look for a bigger house. My questions are these: where should I put the money from the sale of land? Do I put it into the account and have a very small mortgage, or put it into some kind of investment for a year or two? If I put it into investment where will I get the best return, on what is a fairly short period in financial terms?

GC

A A big danger of flexible mortgages, where savings and repayments are mixed together, is that investors tend to get carried away and borrow too much. You have been moving in the other direction, which is very sensible. Personally l would use the money received from the developer to reduce the outstanding mortgage as much as possible.

As l keep saying, it costs more to borrow money than can be earned from investments at least over the short term and especially if you are a taxpayer. Mentioning tax have you checked that you are not liable to pay capital gains tax on the sale of the garden? It is worth finding out before you commit yourself.

You should be all right as regards capital gains tax on the house if you move back into residence within three years although, of course, you will have to pay income tax on any rent received if you decide to let it in your absence elsewhere.