Would you have confidence to pay down a chunk on the mortgage in this situation?

[moertage]

I recently came into a reasonable chunk of money (45k). Alongside this I had a pay rise and should be in a position to save 1k-1,200 a month. I have no idea how the promotion will go so I don’t want to wholly rely on that obviously but so far so good.

I am thinking of paying down 40k of the mortgage to reduce it to 220k. I am 34 so not exactly a spring chicken and I do worry about how much I currently owe.

I have gone round in circles about this as the security of 45k in the bank feels amazing and I never thought I would EVER be in that position. What would you do? Is it risky to pay so much down? If I pay less than 40k it doesn’t adjust the repayments much but 40k means around 120 saving a month on the repayments

What's your mortgage interest rate? Can you get more on the money if you save it?
Do you have any other debts?

Can you pay that much in one go without penalties? It’s normally 10% of the outstanding balance per year.

And if you do, particularly given the pay rise, you should use it to reduce the term (and therefore interest paid) rather than the monthly payments.

We have enough money in the bank to pay off our mortgage, we haven't done it because of big penalties, we are limited to 10% overpayment per year. We do overpay every month and the benefit of this is if our financial situation were to change this is a credit against future payments.

Why not keep it for now and then pay extra 1k a month when the promotion comes through?
You can overpay your mortgage at any point, you don't need to make this decision immediately.

Do you owe property on your own?

Are you sure there’s no penalty for such a large overpayment? I would be inclined to make a smaller payment (assuming you own property alone) and shorten the term length rather than reducing monthly payments. Then you still have some money as back up for the unexpected.

Do you have any other debts? Do you have any other savings? If no debts and if you have sufficient savings for say 3-6 months outgoings then I would pay the maximum possible this mortgage term and look to do the same again tin the next mortgage term . I've done the same and have closed to always pay the same amount and reduce the term. Seeing that interest knocked off and the term go down is brilliant feeling!

Do you already have 3-6 months emergency fund?
What is the interest rate on your mortgage?

I also feel more secure having cash in the bank!

Look up ISA interest rates. Then go on Martin Lewis’s website and use the calculator that tells you if you’ll be better off if you save that money or pay down your mortgage now. It could be the case that if you accrue interest for X years you’ll be better off, depending on the interest rate you can get on savings vs your mortgage.

www.moneysavingexpert.com/mortgages/mortgages-vs-savings/

I'd do the max overpayment this year (lots are 10% of the o/s value) and we generally use it to shorten the mortgage but that's not the only option. I'd keep the rest of it in savings, add to it during the year and then see if you want to do another 10% next year. It does depend on your mortgage though, the rate and when it's up for renewal.

I'm surprised that you need to pay that much to make a difference. We overpay every few months a couple of grand and it always reduces the monthly amount. We have to specify that we want the monthly amount reduced or it defaults to reducing the term of the mortgage (,or something) so I would call them and ask if you can do this.

If you can do the above, I would keep 6months salary as savings and pay the rest into the mortgage (assuming you can do so without penalties).

So many questions, so little detail.

As others have said, it all depends on what rate of interest you are currently paying & if you have early repayment penalties. Seeing as the vast majority of borrowers are on fixed rates then I'd assume you are too & as others have said would generally be limited to just a 10% overpayment.

Also, as others have said, do you have an emergency fund ? Do you have any other savings?

And at 34 you are not "old" and most people would be expecting to be paying their mortgage for another 20 years. (You would be horrified at the age mine is supposed to finish......and in my mid 50's I still owe more than you).

Generally speaking if you overpay it is worth trying to keep the monthly payments the same so that you clear the mortgage quicker. That way you get the true benefit of the interest saving.

Can you take a payment holiday if you need to? I'd be inclined to pay off as much as possible to reduce the term. It doesn't sound like you're taking much of a risk in your current situation.

You also need to look at loan to value and your current lending term.

At renewal look at options on reducing term or increase your over payments.

Or look at a high interest savings account or pension.

With mortgages now available with upper age limits of 80 or 85 or even no upper age limit for finishing paying off the mortgage, at your age you could count yourself more a chick than a chicken in this market.

How much you can overpay may be limited by the terms and conditions of the mortgage. Deciding whether to overpay may also depend on a comparison of your mortgage interest rate with the best available bank savings rates: can your money earn a higher rate in an ISA than the interest rate you pay on your mortgage?

You can use an overpayment either to reduce your monthly payments or reduce the number of years until your mortgage is paid off;

Reducing the number of years reduces the total amount that you pay in interest over the life of the mortgage. That's why advisers or websites will usually recommend reducing the number of years rather than the monthly payments.

But if for you need or want to have more money at your disposal every month, then you may choose to reduce the monthly payments.

Check with bank as some will allow overpayment and then you can draw down on the overpayment if you need to in the future. I have an offset which allows me to save money separately but also reduce the interest if I don't need the cash as it were

2 years ago I'd have said pay it into your mortgage.

Now I think you should save it sensibly and when/if the promotion goes ahead consider overpaying mortgage by £500 pcm if this fits in with the terms and conditions of your mortgage.

I overpaid by £60k, with Nationwide they allow you to miss payments up to that value.
So I'd we got into difficulties we have that money to use.

I would be putting a significant amount of my higher earnings into my.pension, it's paid out before income tax so a no brainer for me.
I'd pay off what I could (without penalty) on the mortgage.
Just be aware if married, then divorced, if you put any inheritance in the 'family pot' then half of it belongs to your spouse.

I have £19k in an ISA, around £10k in a bank account in my home country and around £18k in a short term endowment fund that will mature in March 2025
I can't do anything with it now as DH's employment looks shaky but i do plan to try to live on my take home pay of £2926 - no kids and no car (and dh cycles everywhere) and mortgage of £1282, would be tight but I want to try to maintain my savings level as much as possible.

Long term what would be the best thing to do with it though.

If your mortgage is affordable, I’d keep the cash.

Id invest it though.

£20k in a stocks and shared ISA, the next £20k in April.

You’ll benefit more from this over the long term vs paying down your mortgage now - and you can use the money for the same purpose in future.

Current mortgage £260k reduce it by 10%, £26k
Put £5k in an instant access or 30 day cash ISA for emergencies
£14k into a pension (tax efficient). Check the fees are low & don't eat too much of the profits.

Of your pay increase £1,000
£150 to mortgage
£200 to pension
£150 to savings / investment fund

£500 for you to decide - holidays, fun, save for new car etc

You're 34, by making some clever decisions now in 20 years you will be in a strong position to retire with yiu house paid for, a decent income and a lump sum of saved/ invested money.
And by the time you get to 55 - 60 you will be ecstatic that you did this and can retire and enjoy life while you still have energy & health.

I liked having an offset mortgage. It meant the money was easily accessible if necessary but reduced the interest we paid.

Reducing the term is where you make actual savings. You need to understand compound interest.

Personally I’d look at sticking a chunk into pensions.

I'd use £26k to shorten the term. Even though there may be better options financially (investing etc), there's no beating the feeling of owning your home outright.