Should we pay off our mortgage?

Q I have recently inherited ?50,000. Do l pay off our mortgage or invest it? We have a mortgage with Alliance & Leicester with over l0 years to run and are tied in until May 1 at a fixed interest rate of 6.74%. There is a balance of ?58,276 outstanding.

We both have secure jobs. I am firefighter and can retire with full pension in l0 years. My wife is a teacher and has 20 years before retirement at 60, although she is toying with the idea of retiring at 50.

We have two children aged two and three. We have no individual savings accounts (Isas) at present. Investments could be tied up happily for five to l0 years. We would not object to investing monthly if we paid off the mortgage.

DW

A You have really answered the question yourself. I would recommend using the ?50,000 to reduce the mortgage to a minimal level on May l, when you will no longer have to pay any penalty.

Borrowing almost invariably costs more than the returns from investments, especially when tax is taken into consideration. As you imply, you could use the savings on the mortgage repayments to fund a regular monthly contribution into an Isa to build up tax-free returns, which would supplement your pension.

If your investment performs well, your wife may be able to retire at 50, although l wouldn't count on it since stockmarket returns may stay at a low level.