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Original poster

Pay off Part of Mortgage or Saving or something else

12 replies

MrMayoNessie · 19/12/2023 19:56

Hi all,

Looking for advice/WWYD

Have some money coming to us in the next 2-3 months from inheritance of approx £90k.

In a quandary as to what to do with this. Do we lump it into savings account and get the interest or do we pay off a significant amount of our mortgage. Or something different.

Just so you have the figures

We have mortgage with balance of about £113K, we last fixed in May 2022 for 5 years at rate of 2.24%

I assume if we try and pay off any of the Mortgage then there is an early redemption fee (currently 3.5% year 2). But would it be worth taking the hit not to be paying interest on the 90K. Paying off the £90k would reduce our monthly payments by about £600

Or maybe pay the interest gained from the £90K for the next couple of years until the fix (and ERC) is ended, towards overpaying the mortgage thus bringing down the capital owed quicker. We can pay (I think) up to 10% overpayments yearly.

Any thoughts?

OP posts:

Here4thechocs · 19/12/2023 20:04

I wouldn’t pay off my mortgage purely cos your rate is low , comparatively speaking. I’m sure there are high interest accounts out there you can put the money in.

everhopefulagain · 19/12/2023 20:05

Pay off the mortgage and put the £600 pcm into savings

AppleTreeOwner · 19/12/2023 20:08

No idea about earning interest vs laying off mortgage.
However, do look the mortgage details as to how much overpayment is allowed. You do not have to pay off the whole morgage and close it. My friend paid most of the morgage with overpayments and owes £250 for the remainder of the term which is 5 years and only pays a nominal amount per month with no redemption fee. They did this just to have the security in case they needed to increase a mortgage for any house improvements by trying to access the existing morgage and not apply for a new one.

nannynick · 19/12/2023 20:14

Fixed until 2027, you want to keep that deal.

What about other finances...

Any consumer debt, car loans, anything other than mortgage?
What money is in reserves... emergency fund, short term savings if a future project is planned/replacement car.

How is pension looking? Inherited money is not earned income so cannot be put into pension easily, but there can be ways to use some of it towards pension if pension annual allowance available.
What about long term investments, such as S&S ISA.

Look at the bigger picture. I don't have a mortgage, so I love the idea of paying one off, but doing so can come at the cost of not doing other things.

2024 could easily be a year in which jobs are lost, house prices drop, recession starts to impact. How secure is your income? Think about how consumers spending less could impact on your job. Consider how a change in Government may impact your job. You cannot know what will happen, but plan for the worse case. Up your liquid money buffer. Putting money into property is very ill-liquid, it is locking it away.

You have this money which will help you ride out a period of recession. You may decide to pay up to the max before penalty off the mortgage, each year, for the next few years. You may park the rest for if things get really bad and you need to live off the money for a while.

alwaysmovingforwards · 19/12/2023 20:23

Use your tax wrappers wisely with that shout.
Don't forget you can only make £500/yr interest before it's taxed as salary.

It might make sense to pay off some mortgage, and put the monthly savings into either mortgage over payments to clear it down even quicker, or out that amount into into your pension each month as AVCs.

SnowsFalling · 19/12/2023 20:25

Can you get the 90k into a savings account paying more than 2.5%?
I'm almost certain the answer will be yes. So, until the mortgage deal is over, savings account - unless you have debt elsewhere at higher interest rates than you can get on a savings account.

While mentally, paying off the mortgage is great, financially it's not the right thing given your current mortgage rate and redemption charges.

Rainsdropskeepfalling · 19/12/2023 20:32

Do you have a savings account with emergency money it? How much you might want - some like 6 months salary just in case you lose your job, need a new roof, washing machine etc etc.

After that you can get quite decent rates on savings account, or cash isas etc.

We are overpaying our mortgage monthly, and then ours lets us pay an additional lump sum off (10%) and psychologically I just want rid of the mortgage before our fixed rate runs out.

Chewbecca · 19/12/2023 20:33

I would pay the max mortgage overpayment possible without incurring charges.
How are your pensions? I would make sure I was putting as much as possible into those.
Then I would max my & my DH’s ISA allowance until all invested, with the balance in a high interest account or premium bonds until I dripped it into ISAs or the mortgage.

henrysugar12 · 19/12/2023 20:43

Chewbecca · 19/12/2023 20:33

This sounds the best option to me.

Hitchens · 20/12/2023 08:46

It doesn't make financial sense to overpay the mortgage at all while you can get more return by just holding the £90k as cash savings. You should easily be able to get 4.5% gross as instant access. If there are two of you then you have £20k ISA allowance a year, if you haven't used any of the 23/24 allowance you can put £40k in pre April and then another £40k the day after in the 24/25 tax year.

Now I personally wouldn't tie that much in cash up, but if the money has a specific purpose to maybe pay off your mortgage at the end of your 5 year fix then that's up to you.

Use some of the remainder to treat yourselves, maybe have a couple of holidays. Life is short and whilst being finically responsible has its pros, don't forget to live your life while you can.

Ambi · 20/12/2023 08:57

We're saving up to pay off our mortgage in 2026, similar figures to you but trying to work it in the most efficient way in terms of interest gains and tax liability.
I did some cashflow modelling and Cash ISAs came out best for us. The gains of paying off 10% annually was less than having the funds in savings ready to pay off the mortgage balance in full as soon as the fixed period ends. As @Hitchens said, you are limited to £20k a year each so would have to split down your savings.

GOODCAT · 20/12/2023 09:03

At the moment you can get a higher interest rate on savings than you are paying on your mortgage even after tax, so I wouldn't pay down the mortgage yet. There is a calculator for this on the money saving expert website.

Long term you are better off trying to save as much as you can in a pension because of the tax relief. Personally I would maximise pension contributions too.

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