How to use the extra money?

[katieak]

Hi all I've seen some wise money savvy people on here so thought I would ask your opinions! Bear with the length of this so I can explain the context!

We have recently sold our house. With the crazy market we have lucky to have sold it for more than we expected which has meant that we will have a surplus with our purchase. We were also lucky that the house we are buying is at a level that we are comfortable and happy with i.e. we didn't end up in a bidding war paying a lot more than we had planned. We are now debating what to do with the surplus.

For reasons that aren't particularly relevant to this question, we are paying my MIL's mortgage. She is retired on a limited income so can't afford it. We're happy with this and have been doing so for about 5 years. There are 5 years left on her mortgage and the payments are about £500pcm. It's on a very reasonable interest rate. This is all affordable and has been factored into our budgeting process.

With the surplus we can just about pay off the MIL's mortgage although that would mean we have zero savings as we'd have to top it up from what we have already. However not paying £500pcm would mean we could build those savings back up over time.

Or we could continue paying the mortgage and have a decent amount of savings, some of which we might use to make the new house especially lovely. It's ready to move into so no work actually required but there's a couple of things in an ideal world we might change, would consider adding a conservatory or garden room and we will need to purchase more furniture as it's a larger house than our current one.

We wouldn't need to spend the full amount so would also keep some savings for emergencies etc. We may put a bit more down on the new house.

We had also considered putting the full lot down as a bigger deposit on the new house but the difference it makes to the term and payments is not as beneficial to us as the other 2 options.

If you need to know, the sum we are talking about is about £35,000. Thanks in advance!

You are very kind paying your MIL’s mortgage 🥰 I’d put say £10k into it to clear it down a bit and keep the rest as savings.

Retired, on a limited income. I'd chunk it into a pension. Are you paying the mortgage forever for mil, realistically How long could that go on for?

I believe interest rates will increase.

My advice depends on MIL's will.

DH is an only child and MIL has been very clear he will inherit her property. Although that's not really the point for us. Whether it's all paid off in one go or we continue monthly payments our commitment is to paying it so whether he inherits it or not that would be the case. It's more a case of whether we free up a reasonably high monthly commitment but leave ourselves with no back up or whether we have security of the money in the bank but higher outgoings.

@idontlikealdi

Retired, on a limited income. I'd chunk it into a pension. Are you paying the mortgage forever for mil, realistically How long could that go on for?

Paying it until it's gone. It's a repayment mortgage and has 5 years left to run.

I'd keep paying the mortgage, keep may He half the amount in ling term savings and the other half can be used as accessible savings - use it to buy nice things for the house, if you need emergency funds for e.g. if the washing machine breaks or car needs money shovelled into it.

You Also know that in 5yrs you won't be paying the £500 a month so you can look forward to that extra money in a few years. But if you come into difficulties then you have some ling term savings that can be put to pay off or part pay off that mortgage to either reduce the term or reduce the monthly payments.

How old is MIL? I wouldn’t put it into her mortgage because you can’t get it back again as I assume you would never ask her to sell up. If she became unable to live there then potentially the house would need to be sold to pay for care, so your ongoing financial commitment would end. If she died, your ongoing financial commitment would end as the mortgage would be settled from the estate or you could sell, or use your savings to settle the mortgage.

I’d keep the cash in savings, as it can take time to settle into a new house and see just what needs doing. I would say that we were in this position of having more cash than we’d expected so could have had a lower mortgage- it wouldn’t have affected the term or the payments in the short term but 5 years on I do slightly regret that we didn’t reduce the mortgage amount.

I would be reluctant to leave yourselves with no saving whatsoever. How much savings do you currently have and how much would it cost you to pay off her mortgage? As in 5 years of £500pcm is £30k so why would you need to go into savings?

Personally I would probably spend money on your house and top savings up to a comfortable level.

OK, here's my 10 pennorth.
I think interest rates are on the rise.
I'd pay half towards the mortgage to reduce the payments and save the saving on that.
I'd use some or all of what's left to spend on the house.

If that mortgage is in your MILs name and she needs care, it may be sold. Don't sink money into an inheritance you may not get.

It’s a lovely thing you are doing for your MIL

As you plan to use it the 35k relatively soon, then I’d put it some in fixed interest savings account for a year and the rest in a two year fixed interest account.

This assumes you already have adequate savings and pension provisions. If not, then my view would be different.

I don't know anything about the legalities but I really hope the house is in your DH's name. If not it needs to be transferred. Care fees will take it all if it came to it and perhaps if you can prove you pay for the house you could transfer ownership?

The property is in DH and MIL's joint names if that makes a difference. She is mid 70s and in reasonable health with no signs of requiring care anytime soon although I do appreciate that could change.

I think you may legal advice about how the ownership of the property is split between your DH and MIL. If you are paying the mortgage then your DH should presumably own a larger share. You may find, unwittingly, that you lose out if the house has to be sold to pay for care for MIL. SS are renowned for (quite rightly) going after people for deprivation of assets but it works both ways.

I'd pay off the mortgage and save the £6000 a year.

Whilst I appreciate people are trying to be helpful, the issue of the ownership of MIL's property and whether DH inherits it or not is not really a factor. We're not paying it so we own the house or a share of it, we're paying it because MIL can't really afford to and because she has done so much for DH (and for me too) over the years. It isn't about acquiring an interest or greater interest or anything like that. It was put in DH's name jointly as when they would not lend her enough on her own when remortgaging so he had to go on the title to be jointly on the mortgage. If we end up getting nothing out of it so be it. We've made our peace with that already. Whilst it would of course be nice if he inherits it all in due course, that isn't really the motivation for our actions.

Perhaps not the motivation but it's a very practical factor to be considered. I would urge you to seek some legal advice and make sure the joint ownership is legally recorded in the event of care bills arising.

I’d crunch the actual numbers.
Chances are MIL’s mortgage interest rate is pretty low, and with 5 years to go to you’re mainly paying off capital now anyway, so not “wasting” a lot in interest.

I absolutely wouldn’t leave yourself with zero savings by paying off her mortgage. But options:

• if a remortgage for MIL is even possible, you could switch to an offset fixed for 5 years. You don’t have to worry about interest rises, the savings are there for you to take if you need them and you if you don’t need them, you pay no interest on the mortgage anyway

• look at the actual internet saving (I bet it’s less than you think!). Keep back some as emergency savings. Now - how much tax relief would you get if you chucked (say) £20K of the £35K into your pensions? Hint: I bet loads more than you’d be left paying in interest on the mortgage!

There are elements that you can’t put a price on - like the comfort feeling of knowing a mortgage is all paid off. And maybe you’re too far away from retirement to want to lock money into pensions. But I think you should look at the actual numbers.

Another option for you… presuming MIL isn’t paying INTO a pension now? I’m sure she’s not if in her 70s and unable to pay her mortgage.

So, even if not working and not paying tax, she can pay £2880 into a pension each year, and that will be grossed up to £3600.
If you use your £35K to make that contribution for her (£2880) every year, then together each year you use £2880 of your savings to pay off £3600 of mortgage. If the mortgage is £30K for 5 years and £500 a month it’s very rough 2% interest - and total interest over 5 years is approx £1500. So the £720 you make in just the first 2 years is almost more than 5 years of interest.

At the moment, interest rates are so low now that there are definitely financially better options for “spare” money. I do think they’ll rise… but I would wait and remortgage or just pay off at that point. Enjoy the benefit of them whilst they’re low, you don’t need to pre-empt the rise if you have the spare money as a cushion.

@RosesAndHellebores

Perhaps not the motivation but it's a very practical factor to be considered. I would urge you to seek some legal advice and make sure the joint ownership is legally recorded in the event of care bills arising.

It’s a valid point, but OP said - he’s on the Title deeds.

Have a go with a mortgage overpayment calculator:

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

Based on £30K for 5 years and 2%:

• carry on paying £500 a month from your current disposable income
• make an annual over payment of £3600, obtained by first paying £2880 through a new personal pension for MIL*
• this will save you £475 in interest and the mortgage will be paid off in 3 years 3 months, not 5 years

*watch out if she receives benefits that could be impacted

I'd put the 35k in S&S isa (in your amd DHs names) it should outperform her mortgage interest. Its then also available should you want to draw down on it

I quite agree cocomarine but I still think some legal advice re the agreement to safeguard care home fees would be worthwhile.

@RosesAndHellebores

I quite agree cocomarine but I still think some legal advice re the agreement to safeguard care home fees would be worthwhile.

Good call! I know my PIL changed from JT to TiC for exactly this reason.

If you are paying MIL's mortgage purely out of gratitude and affection, I'd consider her perspective on this. Is she the kind of person who may be lying awake worrying about the outstanding balance? If so I'd be tempted to pay most of it off now - you're being generous to make her feel happy and secure, so why not go the whole hog.

Some super advice here thanks peeps. Sounds like some further number crunching might be wise

For what it is worth, I am a lawyer so fully understand the ownership/care fees issue. As I have said in previous posts, this is not a relevant factor. If we lose all the funds we have paid into the mortgage then that's fine with us. It is not an investment other than into MIL's security and happiness but thank you for your concern