What to do with £100k

[Unexpectedmoney]

Hi mumsnet. Have name changed. Dh has unexpectedly inherited more than £100k. Background of slowly clearing debts for more than 10yrs, we were down to the final £6k. This is a big shock. We never expected to be in this position. There are a few definite dos. We need a new car before ours 13yo one dies. We need new glazing in the window frames at its perma fog. And new carpets. We have 2 dc's age 3 & 6. We want to put them aside a decent chunk each, towards uni or have a house deposit (they are 3 & 6yo). This is something we never had. We don't want to stay in this house forever but plan to see out primary school. We could do up our house to the tune of £20k. Or go for it more for £40k. It's enough money to clear 3/4 of the mortgage if we choose. What would other people do, in this position? And anything we choose to save, how do we actually do that? Bonds? Savings accounts? Have never had any money before! To be honest I feel funny about being in this position hence asking on an anonymous forum. Will of course get some financial advice too but need to have my own thoughts straight first.

I would

Pay off debts
Decent 1-2yo car.
New windows, carpets, bathrooms.
Sunny holiday when we are allowed
Something nice to remember the person by (I’d buy a piece of art)

We had 50k to invest this year so put it in Vanguard, which is online self-managed investment funds. You can choose the level of risk, DH tweaks the funds we’re in every so often and I think we’re getting about 5% off it.

Mortgage has £163k left on it for those who asked. Think interest rate is 3-and-a-bit%.

2% on a 25 year mortgage you are paying half again, so 200k is 300k of repayments

No it isn't that would only be the case if you weren't paying off the capital so that you paid 2% of 200K in interest for the whole 20 years. If you are on a repayment mortage then you would pay more like £250K over the life of the mortgage but inflation would erode the real cost.

sorry whole 25 years

You should be able to get a much better rate than that, OP. I’d definitely start there - if you can slash your interest rate by remortgaging and paying a chunk off, that will be really beneficial.

That's quite a high interest rate at the moment OP. Can you switch or would you get a penalty if you did?

Buy tesla shares.... Seriously

We’ve made approx. 7% interest each year over the last 3 years (way more than our mortgage). How else could we have done that without a financial advisor?!

By reading about investments? I put a lump sum in an investment trust earlier this year and it's gone up 76%, beats your IFA into a cocked hat, and I paid no fees to anyone other than obviously the fee within the IT and the investment platform fee which is about £8 pa.

IFAs don't have access to secret investments you know. You can find pretty much the same information as them. I've never used one and my investments and pensions do just fine (nod to a pp who uses Vanguard - probably my favourite fund!).

Clear the debts first, then get a cheap car , then rather than just sinking 40k and potentially seeing minimal returns, instead talk to a financial institution eg bank ect about investing, as then hopefully that eg 50k or however much you invest will provide a long term financial boat so to speak, rather than it was nice while we had the 100k

You can't lose your money by paying off a chunk of the mortgage.

You can lose ALL the investment if you buy shares in Tesla, get a BTL property, buy other shares thru an IFA, buy Vanguard, etc.

Problem with Premium bonds is you'll probably never win anything, so your money depreciates. Premium bonds are a strategy for making your money not work for you.

If you go with investment, note that Any other investment has to make at least as much as (mortgage % plus a few % more to cover investment fees) to give you as many profits as paying as paying off big chunk of the mortgage can give you.

Suppose OP takes £75k off the mortgage. (imho) OP should work out how much money that £75k payment takes off her monthly mortgage payment (call it £XXX). Then (assuming OP wants to try investments) OP should invest that £XXX every month in premium bonds or Vanguard or whatever. Use a tax efficient vehicle (pension payments can be especially tax-efficient) and spread out the buying risks by using a pooled fund like index-shared shares ISA.

Any of us are unlikely to be as careful with money that falls into the lap as we are with money we feel was hard-earnt. This is another reason why monthly investment payments not a single huge lump sum is a good investment strategy, especially for beginners.

What if you pay off a chunk of the mortgage and then the house price falls... wouldn't that be a loss?
House prices do not always go up:
www.mortgageintroducer.com/liverpool-sees-biggest-decline-in-house-prices-since-2008/

A home is an illiquid asset, it is slow to get your money back out.
Having some of the money going towards reducing Loan To Value is a great idea but I would spread things out so you have a mix of assets, as no one has a crystal ball so cannot say that x will go down, y will go up in value.

We’ve made approx. 7% interest each year over the last 3 years (way more than our mortgage). How else could we have done that without a financial advisor

No, you haven't made 'approx 7% interest' over the past 3 years because those rates simply haven't been available for interest.

You might have made 7% on investments, but that's different and carries risk. Did you actually listen to and understand what this wonderful advisor told you?

I agree that people really don't need to pay an advisor in most circumstances when they have a lump sum like the OP. Any gain over what advice is freely available from the likes of Moneysavingexpert is going to be outweighed by fees anyway and most passive funds like trackers beat most actively managed funds. Plus anyone who put money in the stock market at the beginning of this year is currently likely to be looking at losses of about 15%.

Most people, unless they have hundreds of thousands to invest would be best just paying off debt, thinking about any big purchases like cars and home improvements or moving home, because its usually cheaper to pay for these with savings rather than debt and then looking at pension provision. Other considerations are savings for DC university or house deposits. Any risk based investments need to be as part of a balanced portfolio and for the long term so over 5 years and you have to be aware that they could fall.

Depending on the OPs mortgage rate, they could do a lot worse than just pay some money towards the mortgage, because that's a guaranteed gain and they might be looking to move in 5-7 years time.

Problem with Premium bonds is you'll probably never win anything, so your money depreciates. Premium bonds are a strategy for making your money not work for you

Depends on the amount, under £5-10k, I'd agree with you, but if you have between say £30k and £50k, you're reasonably likely to win close to the stated payout rate each year of 1%, which exceeds anything else available from instant access these days. Below that amount you're gambling up to about £150 pa in interest that you'd get in instant access.

What if you pay off a chunk of the mortgage and then the house price falls... wouldn't that be a loss

If house prices fall, you'd lose money whether you were mortgage free, had a big mortgage, or a small one.

Use the bulk of the remainder as a down payment on a BTL property. Broadly speaking, property is the safest most lucrative investment

Seriously? Even with all the changes in this market over the last few years? The OP has two small DC and also works. She hasn't said anything about having the time and energy to be a landlord too.

Early morning paperwork check, mortgage is on 1.54% for another year before it reverts to variable. I'll work out whether we stand to save more by paying off a chunk of mortgage than we would earn interest having it in an account.

Regarding investments, not losing money is more important to us than making money, iyswim. I was thinking does this sound naive. But then decided not, we're never going to see money like this again.

If we did invest then would only consider a portion of the money and putting it across ethical green companies. Will have to think about it a lot more.

Thinking at the mo,
-Car, house, maybe £30k total. Hopefully less.
-Savings for 'life', 3-6 months expenses so up to £6k.
-Savings for kids, defo want to do some but unsure how much. We will be able to continue to save for them through our working lives.
-Do some maths around the mortgage vs saving
-learn a bit about investing.

I’d put it all on the mortgage so that it bought it down from 165 to 55. Then I’d pay off the 55 mortgage over 4 years so mortgage free. That will save you thousands and thousands in interest payments.

You can then save for windows, new house, kids house deposits with ease because you’ll have a spare 1k or what ever

Not sure if its been mentioned, but if you're in a fixed rate on your mortgage, its likely that you can only pay off 10% extra without paying a penalty, so your hands are tied a little with that.

What you'll probably have to do is park the money somewhere safe where it will earn a little interest until you can pay down the mortgage if that's what you decide to do.

Have a look on Moneysavingexpert. Lots of pointers about getting the best savings rates, accounts for DC, a rational explanation about whether or not premium bonds are a good idea and calculators that will help you decide whether or not its worth overpaying the mortgage.

If you're looking to replace your car, would an electric car be an option? Normally they're not affordable to us mere mortals, or are a very expensive outlay, but if you're in this position where you're planning on buying a 'forever' car, and one would meet your needs, it might be a worthwhile buy?

This explains it.

You need to add what you will pay in interest to your current mortgage debt of 163k. So it’s 163k plus the interest costs of 81k, creating a total debt of 244k on your present house.

With a mortgage of 55k paid over 5 years you will need to pay a 5k in mortgage interest bringing your total debt to 60k. The debt will cease quickly and once paid off in a few years you’ll be 1k richer each month as you’ll have no mortgage to pay

Thanks @BarbaraofSeville and @Porridgeoat helpful advice. I think you both gave me helpful advice on debts before! When dh wanted to buy a car taking our debt up to £27k, and I had a shit fit and ended up refusing to sign the paperwork. Well, now we can finally buy that car! We would consider electric actually however I think that might be a step too far because we need a big size car. Perhaps worth waiting a few years until a second hand kia Niro is a thing.

Using a mortgage repayment calculator is fun... you will see how paying a good lump off the mortgage lowers the overall interest paid and reduces the time.
www.moneysavingexpert.com/mortgages/mortgage-rate-calculator/

I paid mine off years ago and it is so nice not having a monthly mortgage payment. Property is generally a good long term investment but is illiquid so keep in mind your short term liquidity needs - things you need to have the cash for to buy over the next few years which you cannot cashflow from salary... a replacement car may be an example of that.

Not quite the same, but when I divorced I had capital but felt unsure of my income and wanted to reduce my outgoings. So: low energy house retrofit of a cheap wreck, 2nd hand electric car, garden that produces food etc were the ideal investments for me. I now have extremely low core outgoings, and so plenty of money left each month for fun stuff. (Which I now can't spend due to focus but hey, you get the principle)

Very cool as well @Summerhillsquare

Thank you. Suits me as I'm a bit of a greenie as well.

Given the updated info, this is what I would do:

£30k for car and home improvements (interest rates are so low that any saved money loses real value, so now is the time to be investing in things that make your daily life more bearable and hopefully cheaper and more efficient)
£10k each in an account for children, probably child cash ISA but you'd have to pay in over more than one tax year.
£15k long term savings, easy access, as your emergency fund (£6k is not enough)
£6k debt repayment.
Pay 10% off the mortgage (ask them not to reduce your monthly payment when you do this) and put all remaining into premium bonds until your mortgage renewal and decide at that point how much to pay down when you remortgage. Premium bonds are great for short term "parking", while the money does lose value in theory, you do have the chance of a win.

I've recently inherited £50k but I have no debts, no mortgage, no high costs, no need for a new car or house upgrades, and my short and medium term savings funds are covered. So I'll plop some extra into my pension this year, I've put a bit in premium bonds and I'll invest some in my equities ISA - I just found an ethical fund I like a lot.

Thanks @VanGoghsDog, nice clear advice 😁 Why £15k in instant access savings... Just interested how to settle on a figure... I had read 6 months outgoings. When we're debt free, if we live essentially the same lives, we'll have £600pcm mortgage, the cost of running a house, car and food. I have got a proper budget sheet, but thinking £1000 a month round figure, which is why I thought maybe £6k in that pot. Just interested in your thinking.