What would you do with 70k?

[Marianneconnell]

Very unexpectedly we have come into an inheritance. After we have cleared our debts ( apart from mortgage) we are left with 70k. What would you do with this amount? All we can really think of is home improvements and maybe a new car. Usually a holiday would be top of the list but given the current circumstances that's out. I'm looking for inspiration !

PS If it was me I'd use the money for a house extension which we are already doing anyway and spending more than £70k We have savings we'll use but will also have to remortgage to afford it all.

I would pay off debts (about £25k) and use the remainder for a new house.

Would use half to pay a sizeable chunk off the mortgage but keep payments at current levels, thus paying off much earlier. Replace my car as it costs so much to keep going. And rest in rainy day savings. Would be nice to be able to book a summer holiday with the DC for the next 15 years without scrimping and looking for the cheapest holiday let in Norfolk!

We've got exactly the same situation. I think we're going to extend the house, but I also spend a lot of time looking at small houses in rural Limousin in France. Or tiny flat in the Alps.

What is your retirement plan? If one or both of you had to go into care would your pension fund it?

I'm loving the sound of that trip Fitzbilly!!

If it wasnt going to cost you in penalties I would use it against the mortgage and continue to pay the mortgage at level you do now.

We paid ours off with overpayments at 48. It buys a lot of choices!

I cam understand if you want to treat yourself to some home improvements or buy a car if you currently need one.

Have to say foreign travel wouldnt be high on my list for sometime.

@Marianneconnell

Mortgage has about 180k left to pay so it wouldn't make a huge difference.

You really need to think again on that.

You didn't mention the remaining term or interest rate of your mortgage, but I quickly put a spreadsheet together that assumes a remaining term of 20 years and an interest rate of 3.5%. Using those assumptions, your current monthly repayments are just over £1k. The total interest you will pay between now and completion will be £70k.

If you make a one-off repayment of £70k now and keep the monthly repayments the same, your mortgage will be repaid in 5 years and the total interest you will pay will reduce to £21k. You will save £49k in interest payments.

I also modelled an alternative scenario where the remaining term is 10 years, with the same interest rate of 3.5%. In this case you current monthly repayment would be £1780. The total interest you would pay over the 10 years would be around £33k. A one-off repayment of £70k in this case would again reduce the term to 5 years and reduce the interest payable to around £11k, saving you £22k in interest.

Hope that helps. If you are happy to share the actual interest rate of your mortgage and the remaining term, I can calculate the numbers more accurately.

Apologies, I meant to say on the 20 year scenario your mortgage would be repaid in 10 years.

GeorgeWG
OP said up thread that the interest rate is 0.8%.

Ah, thank you Emma. That means that, if the mortgage has 20 years to run, there is around £14k interest payable over the full term of the loan. A £70 lump sum repayment, and keeping repayments the same, would reduce this to around £5,300. The mortgage would be repaid in 142 months, just under 12 years.

In the case of a 10 year remaining term, the interest payable over the term is around £7,300, which would reduce to £2700 after a lump sum repayment of £70k. The mortgage would be repaid in 73 months, or 5 years 1 month.

I'd put some towards paying of the mortgage.

We did this with 10K - made a massive difference as we kept old payments the same which means we are rapidly building up an overpayment reserve. You need to look at what limits there are with overpayments.

I'd put some away for a holiday next year - and some in savings.

If I was already planning to do home improvements or a new car then I'd do that otherwise I'd have a long thing if I was just doing it for the sake of it and we're not planning on moving. We're not so for us would put it in long term savings for kid and us and probably buy a few things for the house and possibly pay for tutoring given what going on with their schools.

If you didn't have such a big mortgage then I would say invest in a rental property. But you do so I would pay £50k off the mortgage, put some aside for a luxury holiday and save the rest in premium bonds.

£40k mortgage
£20k savings
£10k fun money

If the interest rate is 0.8% then don't rush to overpay the mortgage, even with instant access savings, you should be able to beat that rate and if things change, you can always move the money over later.

Only caveat being that you should check the rules for benefits should you become unemployed. In the UK, you'd be expected to use most of the savings to live on if you became unemployed, before being entitled to benefits. So unless your jobs are very very stable, it's probably worth just overpaying the mortgage even though it doesn't make financial sense to do so.

But from those amounts, I'd save around £50k and then use some of the money for a big holiday when allowed and maybe a newish car that I'd hope to keep running for a good few years. Maybe something boring but worthy like new roof and windows or a garden office building too.

Mortgage, savings or (unless you already have sorted) provision for when you’re older and/or unable to work. Doesn’t sound like you’d be sensible to spend much of it at all.

Holiday to japan, new car, new windows, rest into the mortgage - ah to dream!!

In your position, yeah, probably repay a chunk of the mortgage.

A lot of suggestions for buy-to-let. I wouldn't rule it out, but I'd say being a landlord should be regarded as a business not an easy-money investment. And with just a single property, you're at greater risk from bad tenants.

I'd pay 60,000 off the mortgage and use 10,000 for some holidays. 60,000 would mean our mortgage was paid off 7 1/2 years earlier.

Pay off the mortgage, which would leave us with 20k to spare.

Then probably a really nice holiday for a month or so - that would cover a nice break somewhere, for sure. We have a decent amount in savings anyway so I wouldn't feel the need to save the rest, really.

@GeorgeWG The mortgage has about 19 yrs left, interest rate 0.80% , €899 per month. I calculate it would knock about 7.5 yrs off if I put 70k on, does that sound about right?

Re rental property, unfortunately where I live ( not UK) That wouldn't but you anything!

@Marianneconnell Yes, I agree with those numbers. I calculate the final payment of your mortgage to be in May 2039. The interest you will pay over that period will be €13,267.

If you make a lump sum repayment now of €70k, I make your final repayment to be in August 2031 and the total interest you will pay over that period will be €4,785.

I dont get why so many people would pay off their mortgage. Mortgage interest rates are at an all time low, it's the cheapest money you can get.

Invest it and forget about it. If you're 40 and invest £70k at 5% compound interest rates you will have a significant sum at 60.
That could be life changing enabling to retire early or work part time at the end of your career, help children through university or onto the housing ladder.

We have a big lot of money coming in as well. We have to pay the tax. Pay the £4000 off for my car and my husband needs a new car. After that we are having hallway re done upstairs and taking out some walls from that. The rest of the mortgage.

25k towards next house
15k in savings
10k towards new car
10k in school fee savings pot (daughter is not yet 2)
10k on travelling