Pay off mortgage, offset or invest? What would you do?

[wherethewildthingsare]

I have inherited a lump sum from my parents who sadly died this summer. Should I pay off (most of) my mortgage, put it in an all-in-one account to offset my mortgage (and keep the capital in case I need it) or just carry on with the mortgage and invest it in savings? I don't know what to do for the best and it's my whole inheritance (I'm only 38 and I won't have anyone to turn to for any money ever again). The pros and cons of each are going round and round in my head but I'm interested in what other people would do in my situation.

Great split infinitive there...

Agree with Jura. You could pay off your mortgage, but then you won't have the capital in case of need. The interest rates you pay on a mortgage generally exceed anything you would earn in a saving account or other low-risk investment and putting it into a high-risk investment is never a good idea, imo! So even if you aren't earning interest on the money, you're not paying a higher level of interest on the debt, iyswim...

Why not offset it for a year to give yourself some thinking time, then consider again whether to invest?

Personally I'd pay off as much of the mortgage as possible - you could then use your extra income to set up a regular monthly savings/investment plan of some kind. I did something similar when my mum died - reduced the mortgage by quite a lot, which meant that we were in a position to buy an investment property this year (buy-to-let abroad).

Now, please could you explain what a split infinitive is? Sorry, I've always wanted to know and never knew who to ask!

An infinitive is to do something, ie. to go, to paint, to dance. There should be nothing between the word "to" and the verb. A classic example of a split infinitive would be "To boldly go"... You did ask!!

Blimey you lot are grammar buffs! I posted this quickly without reading it through (as usual) and thought I wrote 'to sadly died' (which would have made no sense as well as being ungrammatical!) instead of 'who sadly died'.

I'm liking the offset idea but I think I'm afraid of spending it! Dp wants to buy another property to let but it seems like a lot of hassle to me (and it's not his money!). The best idea would be to try and pay off the mortgage in less time by offsetting (repayment only) and still have the lump sum.

Do any of you offset? Who is good - IF, Woolwich, Firstdirect?

Thanks!

Pay off the mortgage then. If you reduce your debt, you can always remortgage later if you decide to do the buy to let. You don't get a very good return from buy to let nowadays though if you ask me. We looked into it at the end of last year and decided it was a no-go.

The split infinitive is a stupid rule, tbh - it's only against the rules because it's not possible in latin.

I'd offset.

generally the advice is to pay off your debts first - you pay more interest on a debt than you will get back on an investment.

I would pay off most of the mortgage and maybe keep a couple of thousand in savings as a buffer.

You can always use the house as a way of raising capital - eg remortgage later if needed.

You should have some easy access cash - at least £3-5k ideally - if you don't already have this it should be a priority.

Offset mortgage is a sensible option to provide this if you don't already have it. Otherwise, pay off your mortgage first and invest the savings each month.

Why not talk to an IFA?

I have no mortgage etc so I am purely hypothetical But I would go with MrsW and pay off, and then put what you are saving (or at least some of) into savings)

Personally I'd take out an offset mortgage and put the money in the bank

I would then drip feed money monthly into a tracker ISA (an ISA that tracks the stock market) to the maximum annual allowance each year (£7,000) - this would be money I would expect to not need for 10 years or so (although if I did suddenly need it I could cash it in)

By drip feeding you even out the vagaries of the stock market a little so that a huge fall won't wipe out your capital, but on the flip side you won't gain as massively - but as a long term investment (5 years min - but better 10 or 20 as above) .. I'd expect the stock market returns on a tracker to even out at about 11% per year and as mortgage rates are just over half that then it seems more sensible to me

you know that you are soliciting informal views - for proper financial advice do have a conversation with an IFA or find an accountant.

We don't know the entirety of your financial situation. My IFA always goes into big details on my DH's income and outgoings too, so that would be relevant.

But for what it's worth, my personal inclination would be to buy a second property. You could use the rental income from that to either pay off small sums of your mortgage or put into ISAs. I have a tracker ISA and don't think too much of it, but cash ISAs are lower risk.

If he's your partner and not your husband, I'd also to look to getting declarations of trust drawn up to show it was you that put the money into teh house. Dead romantic me.

Like Jura, I would put it in an offset mortgage. First direct are doing a good 2 year fixed rate offset for 5.59% at the moment and so you could shove it in that for the time being and then take a relook at it in 2 years time. If you are worried about spending the money, when you set up the offset savings account ask them to make it a 3 month access one.

Tell hubby that the interest saved on the offset mortgage is at a yield of 5.59% net of tax - ask him where you'll get a bigger net yield on property rental at the present time, although I concede there is a possibility of capital growth which you will not see with the offset mortgage.