Pay down mortgage or keep money in premium bonds?

[InTheCludgie]

Hi, I recently invested part of an inheritance from my later father into premium bonds (£50k) instead of leaving it in an account with a crap interest rate. December is the first month I have been in the bond draw and won £100 which is great, but am now thinking if I should do something else with the money.

We have 24 years left on our mortgage with about £99k to pay. On a variable rate, good rate of interest. We are hoping to move in about four years time after i finish University and am earning more, the £50k is going towards the deposit. Part of me is debating if I should put it into the mortgage instead and bring down the monthly payment (extra cash would be handy while i'm a student) but I also worry that something awful might happen meantime eg roof caves in, a sinkhole opens up in the garden etc (I tend to catastrophise!) and have no cash to sort things out.

What do you think would be best? Thanks!

Mortgage (but check how much you can pay off without accruing charges).

If you pay more capital off, you'll pay less interest in the longer term.

Thanks SoddingWeddings. After our fixed rate came to an end earlier this year we went to variable in the event of being able to pay down, so can put as much as we like towards it with no penalties

Mortgage. Paying off a lump sum will mean that more of your monthly payment will come off the capital and you'll pay less interest overall.

What is your 'good rate of interest' on your mortgage? If it's above about 1%, I'd agree that paying down the mortgage is probably a good idea, but if it's less than that, I'd leave it where it is.

I could pay off most of my mortgage today, but seeing as the rate is under 0.5% and I've comfortably covered the interest charged with premium bond prizes for the last two years, I'm not planning to do so.

It's over 1%. Will need to have more of a think about what to do, thanks everyone for replying.

Keep some cash liquid, you'll need about 6 months of expenses in case of emergency. Over that, pay off the mortgage. It might be worth checking how much you're allowed to overpay, my mortgage only allows me to overpay 10% of the balance per calendar year without penalty

We did a combination when we had an inheritance. Paid off some straight away, put some in premium bonds as emergency cash and invested a portion in stocks and shares earmarked for the mortgage. The latter is something of a gamble but our feeling was that long-term there was a good chance of out-performance and we have the discipline not to touch it unless we really need to. The security of having a lump sum available during lockdown has been immense.

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

Using the calculator above will let you know what your options are. If i were in your shoes I’d pay off £40k now on the mortgage which will bring down the length of your mortgage considerably, plus when you come to buy another property you’ll still have a big deposit via the equity in your house to get you a more favourable mortgage.