Should I pay off my mortgage with a £100k inheritance?

[Jasmine94]

I am due to inherit £100k and I’m wondering, despite advice against it, whether I pay off my £80k mortgage?

The first 20k will go into a S&S ISA but then what to do with the rest? I’ll likely pay tax on the rest so wouldn’t it make more sense to pay off my mortgage?

Likely to relocate in the next 2 years so I can pull out the money again at that point.

I would, if there's no penalty. Being mortgage free is so good in so many ways.

Mortgage free at 31 will be insane!

Depends on your mortgage rate and terms. Plus early repayment penalty
We had a low rate so put the inheritance in premium bonds. Will pay off when deal ends.

I’d do what you are planning unless you have early redemption payments for paying off your mortgage, if you do you need to weigh up the cost of paying off early. It also depends on your interest rate for your mortgage and what you can get from savings minus any tax that may be payable. If you do pay off your mortgage Set up a regular saving plan with your usual mortgage amount with a good interest rate.

Do it!

Yes. I’m not sure why you wouldn’t? What do you mean ‘against advice?’

I wouldn’t, I would put into S&S instead

We.did although we only had about £25k left, the interest rate was about the same as savings and the early repayment charge was only £2-3k.I think.
Was worth it to be mortgage free, and we both now send our half.of the mortgage payment straight to ISAs each month, was a nice surprise getting my annual statement and there's £6k in there and I haven't missed that money at all

No penalty, our deal ended a few years ago. It’s 4.65% so not exactly high!

Depends. On your current savings/emergency funds and your current mortgage interest rate. Yes you may be taxed on gains outside of a tax wrapper like an S&SI, but if you're mortgage has a low interest rate, there is a chance something like an EFT will still outperform paying off the mortgage, even after tax on returns.

What's the penalty for paying off the mortgage? What are your long term plans? So many variables.

I think this is capped at 20k per year?

No penalty as we haven’t fixed again. We want to relocate in 2 years but we may look seriously in the next few months as this feels more doable now.

4.65% rate.

@Jasmine94just saw your update. It really does depend how much the peace of mind matters to you then. You can still invest in stocks and shares but would pay tax on returns. But given your mortgage interest rate, it would still likey be more lucrative. So could be money invested to grow for the next house move. It's such a personal decision

It can be quite nuanced.

Paying off mortgage is mentally a great thing to do, but not always financially the right option.

Some things maybe worth considering:

With all your money in the house, it can be more difficult to pay for any home improvements etc.

If you have a decent interest rate and can get a better rate in savings.

Obviously don’t pay off while you’re in the ERC window, wait until the term comes to an end.

We were in a similar situation and chose to pay off a large chunk of mortgage but not all as we wanted to retain cash liquidity. Should mortgage rates become sky high, we can pay it off but until then we have the money available to us.

The tax free amount you can save is capped - no cap on savings after that but you will pay tax on gains/income

If you think you can make a greater return than 4.65% from putting it in savings & investments even after paying tax on that return then do that. Whether this is likely depends on your tax rate, your investment savvy and a whole bunch of luck (who knows what will happen to the stock market when Trump declares his next idea). Personally I’d pay off the mortgage.

Stocks and shares ISAs are capped yes. Regular stocks, EFTS etc are not.

Yes I would pay it off if no penalty and no other debts. Saving you 4.65% in interest payments that you make from I assume already taxed income. You could then consider paying that amount into your pension claimed back income tax relief. Lots of options. Good luck

Good points! We have separate savings and our house is newly renovated so will be maintenance only for the foreseeable!

Also I forgot to add that it can depend on your approach to money generally. If you are someone who is likely to fritter it away if it’s available to you, then locking it up in the house might be a better decision as that takes away the ability to dip into it every time you get the fancy to buy something!

"I’ll likely pay tax on the rest"

Why?
You may pay tax on the interest but even that isn't necessary.

That said, paying off the mortgage is a great feeling so I would need to be convinced it was a poor decision.

Talk me through this - I thought anything over the 20k would mean the interest would be taxed.

I am probably laid back about it all as I know that when we sell, we will have a good amount of equity so I can just take the money back again.

I did exactly this in my 40s and then put the mortgage money into my pension. It made sense to me and the mental relief was huge. I think if I was to wind back time, I would have held back enough to max out the following years stocks and shares isa. I was a bit late to the party on stocks and shares ISA !

PS, you can whack £50k into premium bonds and the winnings are tax free. Less than you can get in interest but if the tax might push you over an income threshold it can be worth doing. Martin Lewis has some info about it: It’s a good place to park it while you decide what to do anyway as it’s easy to take out when you need it.

Pay it off BUT!!! continue to put the mortgage payment into a savings account or investment product otherwise you’ll just fritter the money away, and if you decide to move you won’t have to get used to paying a mortgage again because you will still be doing that but as a savings pot.

I plan on moving my loan payment onto my buy to let mortgage when it ends next year, then I’ll move the combined payment onto my residential mortgage once that has been paid. That way when they’re all done I get a huge financial boost rather than just getting bits back in dribs and drabs over the next decade

I would pay off the mortgage first. That doesn't mean it's the best thing to do financially though. My financial adviser says he usually tells people to look at pensions first (though less critical at 31 when you've got plenty of time to top up pension gradually from saved mortgage payments).

For me the attraction of paying of the mortgage was the wonderful "free" feeling of a lifted burden. Soooo good for my mental health though of course we are all different.

Ours is paid off and no regrets. We know the money is pretty safe as bricks and mortar and if we urgently needed it we could still remortgage or downsize.