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 have an NHS pension so I already pay a sizeable chunk into that and I already have savings so paying off the mortgage feels like the easier thing to do! I’ll probably put the mortgage money into my husband’s S&S ISA!

Yes being mortgage free makes you feel very secure.

An ISA is capped at 20k per year but there is no limit in how much you can invest in stocks outside of one.

The question to ask is do you want to (in effect) borrow at your mortgage rate to invest in the stock market.

There’s probably quite a big psychological benefit to being mortgage free and instead investing the amount each month that no longer services the mortgage.

At that interest I would pay it off.

Financially it’s likely to be better to put it all into shares and then move £20k every year into an ISA. If you can leave it untouched for 10+ years then this will almost certainly give a better outcome than paying off the mortgage. (Pay it in over 5 years and then leave it for 20 years- you’ll have half a million assuming average returns by your mid 50s, or £300k real terms). However this relies on you leaving it untouched and not being tempted to either spend it or sell in response to downturns.

Whether that’s what you want to do is purely personal choice. Paying off the mortgage gives people great peace of mind and that might be more valuable to you than the prospect of eg retiring 10 years early. No right or wrong.

I have quite a bit of disposable income so I think paying off the mortgage would just make more sense as I can still save every month at a decent pace.

We are also planning to start a family next year so there will be less pressure without a mortgage.

Perfect idea. Also don’t forget if you have kids you can pay into an ISA for them too so it is tax free and takes the thinking out of their house deposit or uni fees in the future.

I paid the maximum tax fee amount (my husband did too) into our work share purchase scheme, now I have enough for a house deposit for my son, and bought him a car, plus a brand new kitchen and bathroom over the years. All for the price of 100 (loose estimate) a month from my salary (150 before tax and national insurance). It adds up fast, I couldn’t really afford for us to both do it at the start but tried to press through anyway and now I don’t even notice it coming out

What is a work share purchase scheme? I will look into this. No children yet but was already planning on setting an ISA up for any children we have. I didn’t have much growing up so feel like I’ve had to try extra hard to learn all about finances. I wish we were taught this in school!

Who's advised you against it? A financial advisor? Or Bob at the pub?

It depends on where you work, the NHS won’t have one but if your partner works for a company that is on the stock exchange then they may have one.

for me I am able to put in up to £1800 per year tax free. The first 600 is also matched by the company. So I get the deduction of 150 per month taken from my salary pre-tax.

as long as I keep my shares for 5 years then all tax liability is removed, I can then choose to keep them, or sell as I wish. Covid shares have just been maturing and so I paid almost nothing for them but the share price is now 4x their original cost. Unfortunately it also means that I’m now buying when the rate is high, so I’m currently considering whether to push the money into my pension instead.

When you can you should always pay off your most expensive debt. So probably your mortgage unless you have significant credit card or other debts.

It is also important to remember that funds in a Stocks and Shares ISA can go down as well as up. The returns are not a given as some posters seem to be implying. Not having a mortgage payment will instantly afford you more disposable income to invest, save or spend as you wish.

This, and why did they think it wasn't a good idea?

Personally, I think a share such as legal and general which pays a very high dividend is well worth thinking about. Not for everyone I know. I'm not suggesting you put it all in one share though!
Look at a compound interest calculator for an idea of just how much compound interest adds up.
Have you used up both of your ISA allowances for this year?

Definitely a couple of Bob’s and some general advice I have seen online.

Most family/friends have told me to spend it on an expensive holiday so not sure why I’ve even considered their advice 😂

Depends if there is a overpayment fee? I'd keep it all invested and pay off chunks of the mortgage each year - which would avoid any charges... and you'd have the money accessible ahould you need to use it for emergencies/mat leave/big holidays 😊

In my late 30s I got a similar amount (critical illness payout) and paid off my mortgage. Never regretted that decision. Not having a mortgage is one of the best feelings for me.

Yes you absolutely should. We were lucky enough to do the same, and it was a dream. We no longer worry about interest rates affecting the mortgage. It’s great not paying a mortgage anymore. Now we no longer have a mortgage to pay, we can save up now!

No other debt 😊

Pay off the mortgage, put the monthly amount you have been paying into a savings account, and use that for next year’s ISA allowance

Are there two? 20k was the maximum overall (I thought!)

Unfortunately not but it sounds brilliant!

You and your husband can each have an ISA in your own name, so £40,000 a year in total

There are some great calculators on the moneysaving expert site, this one helps you compare over paying on your mortgage to savings based on your tax rate

https://www.moneysavingexpert.com/mortgages/mortgage-overpayment-calculator/

Playing around with different scenarios may help you to get a better idea of what you feel most comfortable with/ fits your life plans best.

Sorry, yes, both will be maxed this financial year.

Personally I’d definitely do it, unless you are thinking of moving really soon and would pay a penalty for paying it off early - then you might as well keep it for a great down payment. If you’re sticking with moving in a few years I’d pay it off now.

(am aware there are probably slightly more savvy ways to think about it and you might make a bit more, but for me having that bill sorted would be so freeing I would do that first)