150k - which would you do?

[Forya10]

I owe 270k on a 550k valued house. I am due to remortgage in a year at which point I will owe 260k. I’m 38 and single and likely to remain that way.

I have saved 150k to put my child through private school from age 6. I wouldn’t want them to start later as I am keen for them to go into that intake. I am hoping people won’t derail the thread and make this about private v state!

Would you keep the 150k (earning around 12k a year interest at the moment) and slowly use it towards school fees or would you pay the lump sum off the mortgage and begin saving again at that point/paying for fees from income as savings (hopefully) build up?

I doubt I will get a better rate than 4.5% when I re mortgage.

I honestly couldnt spend £150k on one child education. It just seems a lot. My friend privately educated her 2, one became a builder and one a hairdresser. I just though what a waste!!

Do you know how much the fees will be?

Save it. You can 10% return if you find a medium risk unit trust. With compound interest, it will be c.£427k in 10 years time, then you can pay your mortgage off in full and have spare for the school fees - if you can afford your lifestyle as it currently is in the meantime.

You can put money in and take it out whenever you want. When the money is in there, the interest is calculated as if you have paid that money off the capital owed.
I’m self employed and it’s where I save up to pay my tax bill every year. It has saved me a fortune in interest over the years.
It’s nowhere near as good as the 12% you are getting elsewhere though!!

They used to be quite common, not so much these days!

Generally (and definitely in your case) paying off your mortgage saves you less than you would make by investing the money or putting it in a decent savings account. Though I understand that mentally paying off the mortgage feels better!

Paying off the mortgage also locks that money away - and that's risky, especially as you're fairly young, have a child, and have relatively imminent plans for the money.

I mean, personally I’d buy some land and some goats… but I think we’re probably quite different people. £12k sounds like a good investment so I’d only spend the interest (if I was being sensible).

Keep the money in your current investments, use the interest to overpay the mortgage and reduce the monthly payments (rather then reduce the term, you may need to specify you want to do that with the bank, ours always defaulted to a shorter term) use the money saved from the monthly mortgage to add back to the capital.

Doing this, the capital will rise, as will the interest you will be using for the overpayment and you mortgage will also reduce.

It may not be the most optimum in terms of income but I would want to make some impact on my mortgage. You have no idea if your investments and savings will continue with their current return. You have no idea what your mortgage interest rate will be next time. If you can get a 5 year fixed rate at a decent rate do so!!

Sorry, not giving advice here, but just interested to know how you are making £12,000 interest a year, as I thought rates had lowered?

Investments. You won't get anywhere near that with cash savings. Eg: Global FTSE tracker has moved -1%, +6%, +16%, +15%, +22% in the last 5 years.

I would keep the money invested, as much as possible use mainly the interest and my salary for the school fees; and then use the remaining capital to pay off anything left on the mortgage when DD leaves school.

I would keep it separate provided you are disciplined enough to not touch the principal.

Have you investigated the tax implications?

Also, good job you!!

Exactly that. We have always had one. Our salary goes into it every month and we only pay interest on what we actually owe, which can vary each month.

We could actually have paid it off by now, but we keep a little in it as it's the cheapest instantly accessible loan we will ever get for i.e. a new kitchen.

Obviously, you have to pay down some of that mortgage before you can start redrawing it, and it's not a great idea for people who are financially irresponsible and just see it as money sitting around waiting to be spent. But it doesn't sound as though that is the case for you, so I would have thought it was the obvious and perfect solution for this situation.

If you are earning higher interest on savings than you are paying in mortgage interest, then keep it all in savings.

I wasn't but I knew I could always get a new job within 12 months if I was made redundant, so I kept 24 months fees and 24 months mortgage money in a savings account, and paid the rest off my mortgage.

It was a reasonable compromise. Covid came, I was made redundant and it took seven months to find a new role.

DS recently finished school and I paid off my mortgage the following month. The remainder will go on halls fees.

How old is the child? Can you pay the fees without using the savings? Those are the crucial questions. Personally if you can pay off the mortgage I would prioritise that. The freedom is life changing.

@Forya10 go with what @Luckydog7 suggests, keep your savings separate but use the interest to overpay your mortgage - best of both worlds with minimum compromise on either. Well done for getting to this point, you've done you and your child a huge favour!

£12 k per annum would pay most of the school fees, esp in prep.

Keep the money invested, pay for school from the interest and dip in when needed. Pay the remaining balance off the mortgage when the child finishes school.

Or speak to a financial advisor!

Definitely keep it in savings, partly because you’re getting a better return for your money, but mainly because life can throw curveballs and you can’t easily access money tied up in your house.

You can 10% return if you find a medium risk unit trust.

You can, but you can also lose money if the markets go south. I'd be wary of putting all my savings into one vehicle like this. Some, yes, but not all.

Cautionary tale: in the 00s I had an offset mortgage, reasoning that mortgage rates would generally be higher than savings rates (since it effectively functions as a savings account). For the first few years, I could have made better returns by keeping that money in equities, as the conventional wisdom says you should. But then the crash of 2008 happened, and I was glad I hadn't!

They are probably making more money than if they had become academics. And if they open their own businesses …. 🤷‍♀️

Completely agree with this. Offset mortgages are not often the best arrangement, but your situation is exactly what they are best for. Of course, you’ll only be “earning” the mortgage rate on the savings rather than an investment rate, but conversely no tax and no risk. And if you end up managing most of the fees from income you’ll pay your mortgage off very quickly. Many of the big lenders offer offset mortgages, and money saver expert has a calculator here https://www.moneysavingexpert.com/mortgages/offset-mortgage-calculator/ . I’d at least read up on them before you decide.

I would get an offset mortgage and keep fee money separate