WWYD - more savings or lower mortgage?

[silkypyjamas]

Asking for opinions on what to do when my divorce settlement comes through next year. My situation is that I am 54, divorced, I moved out of the marital home and bought a house with a mortgage around £275,000 and used all my savings to furnish and decorate it so don't have much left now. I have a reasonably comfortable job but no idea whether ill be employed there in the next 2-5 years with lots of changes happening in the industry. Next year my Ex has to buy me out of my half or sell the house (or I get the option to buy them out if they can't) which I will get 50/50 but wont be enough to pay off the mortgage of my new house, maybe an estimate of 200K. I am unsure what to do, whether to pay as much off the mortgage as possible next year and have a small mortgage and min savings or reduce my payments by half and keep a mortgage of say, 100K and have more savings. I know no one has a crystal ball but I was wondering if anyone else has had the same experience and any regrets whatever you did? Thanks for any advice. Edited: Not sure why its added AIBU - wrong thread maybe sorry

is the interest on your mortgage higher than any interest you could get on savings? If so pay off the mortgage. Check first whether there are early repayment charges for your mortgage. Sometimes there are.

My mortgage rate is currently 4.13% so yes probably higher than the savings rate but if the base rate goes up again not much in it atm.

I would personally reach out and speak to a financial advisor if you are stuck.

If you want me to be honest, I’d pay £150K of the mortgage off and keep £50K in savings.

Set aside enough in savings to cover, say, 6-12 months of outgoings, and use the rest as mortgage overpayment.

If it was me I would have a smaller mortgage and less savings. What would the difference in the monthly payments be. You could always put the difference into a savings account every month.

Most people don’t need 100K of “just in case money” which is why I think having 50K is more than enough. I would definitely try and put 150K to my mortgage for lower repayments, you will be able to save more as you will be paying less on the mortgage and starting on £50K of savings is a great amount.

I would do half on the mortgage and half in savings. You just never know what’s round the corner

Some of the penalties for early mortgage repayment can be staggeringly high. We were quoted a penalty of £24k recently for early repayment of our (admittedly large) mortgage.

I would do this too. I think you need some savings in case of redundancy.

Wow, that’s something to think about too.

Speak to a FA

However personally at your age I'd concentrate on having a small back up of say 50k and then concentrate on the mortgage. Then what's left overpay and clear. In my mid fifties I'd want to be thinking about having no outstanding mortgage and concentrating on retirement as a 10 year goal. Worst case if something happens and that 50k wasn't enough I'd downsize and use some of the equity.

Great suggestions thank you for the responses. It's nice to see a larger balance on a savings account but I suppose I am more likely to spend it on luxuries and investing in the property would be better long term. I fixed the rate for 3 years knowing that I would be able to pay some off so hopefully there are no penalties but I will double check. I know I was able to pay 10% every 12 months on the current mortgage. I will speak to a FA. My other option was to pay less off the mortgage and purchase a buy-to-let property but maybe more hassle than its worth.

Agree with keeping £50k back in savings. You’d kick yourself if there was a major issue with your car, boiler etc. and it always seemed to happen at the same time. Also check the ERC. There is nothing to stop you over paying the mortgage by the allowable amount and keeping the rest back in a sensible savings place (hard to access, fixed term account etc) until the ERC decreases or the mortgage is due for renewal then paying off a chunk then.

I wouldn't see a financial advisor for this. Basically all they will do is focus you on two questions which you can answer for yourself:

1. which interest rate is higher (even over the last year, I made 7% on my S&S ISA)
2. realistically what is the likelihood of needing your savings and for what

That will guide you towards a split between savings and mortgage

Buy to let is less attractive than it used to be with the recent tax changes.

You could pay the 10% off each year and then reassess when you come to the end of your three year term and have to remortgage. At that point you can pay off as much as you want by taking out a much smaller mortgage.

If you do keep the cash, the classic advice is keep an emergency fund, say six months expenses and invest the rest in some sort of stock market tracker fund as part of a stocks and share ISA. Not risk free, but less likely to let inflation erode your savings. Also may help you not blow the cash on stuff you don't need if it's tied up. It makes a mental difference.

Good advice @StrawberrySquash with the keeping back 6 months expenses as a fall-back and locking away some to reduce temptation of a sudden spending spree :-)