Mortgage or loft

[Squiffy01]

Hi all,

My husband is about to inherit a very substantial amount of money and we have been discussing what to do with it and just can’t decide.

We can’t decide if we should put it all on mortgage and pay overpayment penalty (we are locked in to current rate for 5 years... 4 years to go but can pay off 10% each year). So we can get it down and if I struggle to find a new job we will have a lot less on mortgage repayments.

Put it all on mortgage but just do the 10% each year and then whatever is left at the end of the 4 year bang that on to get it as low as possible. Obviously will be great long term but we won’t see any benefit of this in our day to day lives for 4 years.

Put most on mortgage (as over payments that we are allowed) so not hit with penalty. And do loft conversion. To make the third bedroom that is in the pitch of the roof useable. We will want to do this eventually and we were thinking it would be a 10 year plan while we saved for it until this happened.

We just can’t decide if it’s silly do an extension and not getting the mortgage as low as possible.

We plan to go on a nice holiday as well as travelling was such a huge part of his parents lives but not sure how much that would cost certainly not ridiculous amounts.

We were in a similar position a couple of years ago. the first thing we did was pay off the mortgage, from what I remember though there wasn't much of a penalty to pay. we are planning a small extension now and home improvements as our house is in desperate need of improvement. I would just say be careful you don't fritter it away on silly things as we have found there is a tendency to be complacent about money now ( never having had it before) and we have been surprised how much extra we have spent on silly everyday things when we should have been able to live comfortably on our salaries. We are supporting one ds through University though and its an expensive time with 3 other teens also. My way of looking at it is that an extension will improve our quality of life with a large family. we are also creating a home office from a small garage conversion as I need an office for a new job.

Definitely won’t be frittered away! I could think of nothing worse.

It will either be mortgage, loft and a small holiday. It will go into another account earning interest so we can’t spend it accidentally.

Are you planning on moving again in future? If you are I would do the loft conversion so you get the benefit because the value you add to the house may well counteract not putting that part on the mortgage. That way best of both worlds.

I’d do the last one - put aside 4 years worth of overpayments into the highest rate ISA you can find; then do the loft conversion as well.

This will likely increase the value of your house anyway, giving you a better LTV when you do come to remortgage, which will mean you get a better rate and be better off.

If there’s any money left over, stick in the ISA with the repayment money and chuck it on the mortgage after 4 years to really maximise the benefit all round; this prevents the temptation of frittering away any spare!

What is your overpayment penalty? Mine is very harsh so I’d never go over and would stagger overpayments in a similar situation.

What is your remaining mortgage and would the inheritance clear it eventually? If so, the psychological impact would potentially be massive. You’d then be able to save up for the building work knowing you had your house.

If the inheritance represented a partial pay-off then you’d need to decide whether to reduce monthly payments or shorten the term. It might be that a combination of overpayments and saving for the works would suit you better.

User over payment penalty is £17 000! My husband thinks it goes down quite a lot after the first year which we have just hit so will have to look that up. It doesn’t pay of the entire thing - comes very close maybe 50 000 short? But will depend on the exchange rate when everything goes through.

Loft and annual overpayments.
Seems crazy to waste money on penalties that you could do something positive with already.
If you haven't got to the end of your year yet, quickly get in the first overpayment. You can do the second as soon as the next year starts (confirm with bank of couse).
After that you'll have to wait a year.

This is a no brainer - do the loft and make whatever overpayments you can without penalty. Then when you remortgage in 4 years time get the house revalued so your LTV is better.

I wouldn't make overpayments that trigger the penalty. That's almost certainly a waste of money.

Look at your mortgage rate and what you can get in savings. You might get as much, if not more by saving the money and paying the mortgage down in stages, to avoid penalties. But as you're talking about a lot of money, consider the interest tax allowance. This can be maximised by putting some of the money in your name (if your DH agrees) and also maybe buying some premium bonds, as the prizes don't count towards your interest allowance.

As for making the best of the mortgage overpayment, as always MSE tells you everything you need to know:

www.moneysavingexpert.com/mortgages/mortgages-vs-savings/