Lump sum instead of monthly maintenance?

[HollyBollyBooBoo]

I probably need to get a financial advisor to give me some advice but I'd appreciate any thoughts on this situation and if there any pitfalls.

Few years left until DD is 18 and child maintenance to me, from her Father, ends. I'll let them agree how he's going to support her if she chooses to go to Uni.

He's come into some money and has offered to pay me a lump sum now at around 92% of the value of what it would be if he continues to pay monthly. Rough calculation as we can't predict inflation and therefore annual increases.

I'm seriously considering taking it as I could make overpayments on the mortgage which is fixed for the next 4 years and invest the rest.

Are there any downsides that I need to consider?

If you are responsible with money then there is no downside in my experience. Where did you get the 92% from?

Is he about to get a whopping big payrise he hasn't told you about?

But yes where has 92% come from?

Check with your mortgage company how much % you can pay off before you get charged because my old mortgage company would allow my to pay 15% extra per year on top of the agreement amount otherwise I'd be charged a fee

This isnt usually advised as there's nothing stopping you from claiming CMS from him in the future so it's risky for him.

Thanks all.

The 92% is me working out the number of payments left x what he pays per month, versus what he's offering now. So for easy maths say it's £100k over the next couple of years, he's offering a lump sum of £92k (NOT the actual figures just easy way for me to explain!). What it doesn't take into account is annual increases which are in line with inflation.

I can pay off 10% of mortgage for the remaining 4 years whilst it's fixed.

I can't help feel that a bird in the hand is worth two in the bush but worried there is a catch?

You need to build inflation into your calculation for it to be meaningful. Use the Bank of England inflation forecast figures. And then work out how much interest you could earn on the lump sum. Then if the number once you’ve adjusted for both of these is closer to 100%, you’ve got a good deal. (I’m assuming that he isn’t about to lose his job or get a massive pay rise.)

On the other hand I guess he could lose his job or die so then you'd get nothing. Tricky one.

Why are you giving him an early payment discount? Especially as future payments would keep pace with inflation making the discount even bigger, so this is an even worse deal on your child's side.

It is a Saturday night so maybe I'm being dense, but I don't understand why you'd do that. If he wants to pay his way out of it he should be paying the real value.

If I told my bank I wanted to pay off my mortgage but I'm only going to give them 92% of the balance owed, I'm fairly sure they'd tell me to piss off.

I guess there has to be a benefit to him and me, why would he give me 100% when he could just invest it and get interest himself.

It would save me thousands in mortgage interest.

So he doesn't reckon he's getting a pay rise in a few years time? Having that lump sum will also affect you if you get any universal credit

I would ask for 95% and go for it

He might die

If you can manage without the extra each month then a lump sum could be useful as you will pay less interest on your mortgage & it should bring payments down. Also you know for definite you are getting the cash.

Would it affect any tax credits as I think if you have savings they get reduced?

I would definitely take the lump sum if it will save you in interest! You never know what's round then corner

I was persuaded by my solicitor to accept a lump sum and no maintenance. No children involved. |Not a huge amount but enough to help me to buy my first home. I|t worked out better for me because he was killed two years later.

CMS give the option to pay the years payments in full instead of monthly. So could you not use that figure (it should be in your yearly review letter) and deduct what's he's paid so far for this year. And if nothing is likely to change financially for him over the next few years, surely his CMS payments would remain the same

@fufflecake that has always played at the back of my mind.

Thanks for all the input everyone. Lots of food for thought.

Lump sum now is better if there is high inflation and you don't expect to the payments to increase, due to time value if money.

If the payments stay the same at, say, £100 a month (just picking easy numbers) then that £100 today would only be worth £90 next year (with 10% inflation).

Obviously if there is an increase then this would net off against the 10% reduction, but a 8% reduction, over 2 years worth of payments would be pretty good.

Not sure where I got the 2years from. If it is longer then it would likely be an even better deal if he will agree

Does he not have to support her until she finishes full time education ie college? Will he presume this is him finished forever? Or are you factoring in college in your figures?