Inheritance - pay off mortgage or something else?

[33goingon64]

My Mum is terminally ill and I'm likely to inherit quite a lot of money as she was a very savvy investor and benefited from a public service pension as well as my Dad's estate. I realise some people might think it's poor taste to be thinking about what to do with the money while she is still alive but we're very practical and open in my family and she has encouraged us to start thinking about it.

DH has suggested we pay off the mortgage. For background, DH earns way more than me and pays all the mortgage, bills, for the cars etc. He has a fair amount saved. I work PT and pay for holidays, clothes, and other expenses etc and I have some savings in my name. The mortgage is in joint names and we have always treated our money as joint pot. He doesn't see his earned money as 'his'. We have 2 DC.

So his suggestion that we pay off the mortgage with my inheritance seems fair, doesn't it? He has, after all, been the one to get us so far through paying it off already. The house is in joint name, if we pay it off and then further down the line something went wrong and we split it doesn't disadvantage me at all if the house is paid for. My contribution to paying for the house would have been very small compared to his. The DC will both get a nice sum from my Mum too which we will invest for them and with luck over the next decade that might cover a fair bit of university fees or a first home deposit.

Yet I somehow feel like 'my' inheritance should be used for something else, like a holiday home, or to invest for something big later in life. I mean, I think I know that paying off the mortgage is the sensible thing as it frees us up for the future. But it's a big decision and I just want to stand back and consider it carefully. Would love to know what you think. Thanks.

I'd have no hesitation paying the mortgage off.

Part of the existing monthly mortgage (at least 50%) can then be paid in to a private pension for you

The other half could go into savings.

We were in this exact situation and paid off our mortgage and put the rest into savings. The sense of freedom is amazing.

I would make pension a priority before the mortgage.

As they say, you can't get a loan to live on in retirement.

As the main earner in my householder if my DH came into some money and didn't help by paying of the mortgage I'd be really pissed off....

That being said I'd also expect him to put some in a pension too - as also pretty selfish to expect his pension to support you both when you did have the means to do something about it

It almost sounds like you are more than happy that to reap the benefits of working part time and your DH working full time to support that and class his earning as "your" money but you refer to "my" inheritance 🤔

You need to address the inequality in your pensions as a priority. Plus the interest rate on your mortgage is likely to be very low and investments/a pension should outperform mortgage interest over time.

Put as much as you can in a pension.
Also put some savings in an ISA for medium to long term investment as a top up to your pension.
Then look at paying off the mortgage.

Also think about money for car replacement, home improvements etc, the sort of money you otherwise might borrow or take a long time to save for.
Plus maybe buy or do something nice to remember your DM - a holiday, camper van, whatever suits your family.

If the sum is very substantial, say above about £200k, it's probably worth paying for professional advice from an IFA/financial planner.

Sorry to hear about your mum
When I inherited some money, I did more than one thing with it.

I spent some on a big expensive family holiday, staying in nicer accommodation than we otherwise would have done.

I invested some with a plan to use that money to retire early.

I paid down the mortgage, but didn't pay it off entirely. Now I make regular investments into a stocks and shares ISA of the difference between the previous and current mortgage payments. This gives some flexibility in case our financial situation changes or a big expense pops up.

What we were advised was, when you are still relatively young, and have dc, if you have been comfortable managing the mortgage, then it is wise to invest the lump sum, and it gives you options further down the line.

If you pay off your mortgage, then most people get used to having more "spending money" each month, and do just that - spend it. It is presumably unlikely you will get another big lump sum like this again.
We treated ours like an insurance - it was there is either of us had to give up work, or ever needed an emergency lump of money for some reason, but, now our dc are adults and we've been fortunate enough not to have to fall back on it, we are able to give each of our dc something towards their first properties, which is not something we would have 'saved for' if we had paid off the mortgage when they were tiny.
I do believe in splitting what you inherit too though - yes, be practical or sensible with most of it, but also put something by for something that you don't need, but would just 'like' - perhaps a holiday or a season ticket to something.

@Kite22

What we were advised was, when you are still relatively young, and have dc, if you have been comfortable managing the mortgage, then it is wise to invest the lump sum, and it gives you options further down the line.

If you pay off your mortgage, then most people get used to having more "spending money" each month, and do just that - spend it. It is presumably unlikely you will get another big lump sum like this again.
We treated ours like an insurance - it was there is either of us had to give up work, or ever needed an emergency lump of money for some reason, but, now our dc are adults and we've been fortunate enough not to have to fall back on it, we are able to give each of our dc something towards their first properties, which is not something we would have 'saved for' if we had paid off the mortgage when they were tiny.
I do believe in splitting what you inherit too though - yes, be practical or sensible with most of it, but also put something by for something that you don't need, but would just 'like' - perhaps a holiday or a season ticket to something.

Excellent food for thought.

So sorry OP about your DM.

When I inherited some money most went on paying down the mortgage but I also kept some to buy a special piece of jewellery to remind me of my mum.

If DH inherits (more than likely but neither expecting in case of care costs etc) we will probably do the same. We no longer have a mortgage but most will go on funding retirement but DH will also buy something like a watch as a permanent and physical reminder.

I'd pay a chunk, not all, off the mortgage, a chunk into your pension, and then keep a little aside for a treat/family holiday etc. You could buy a holiday home, but then your money is gone and you've got more expense because you have another property to maintain and pay bills for.

Kite and squirrels give good advice.
It is sad you have lost your Mum and most important to do the best you can with your inheritance.
You are moving into a different phase of financial planning. Paying off your mortgage is not necessarily the best thing to do. You are able to start creating wealth now.
You have an isa allowance of 20 k per year ISAs are tax free on the way in and tax free on the way out , set aside enough to utilise your annual allowance for a few years.
Pension contributions are tax efficient If either of you are higher rate tax payers you will benefit from additional tax relief on contributions.
Any contributions you make into your pension will be topped up by HMRC . For basic tax rate payers every thousand pounds you pay, HMRC will top up with £250. Even if you are not working you can pay in around 3,000 per year. Someone will confirm the exact figure or I can look it up.
Consider
6 months living expenses in premium bonds for ready access.
A few years ISAs allowance set aside 20k now abs £20k ion April 6 is £40k
Look at your pension.
Pay a chunk off your mortgage.
What sort of sum in total? , perhaps we can make other suggestions.
Good luck.

Definitely pay if the mortgage,You will save far more in interest than you would earn in an Isa/ savings account. The money saved then be used for holidays/ savings etc and you own your whole house!

I haven't read the rest of the replies but the but that stands out to me is that your DH has savings and you have a small amount of savings in your name.

It is a good idea to put pensions and savings in your name. If you do pay off the mortgage, make sure the funds that would otherwise have paid this, get redirected into pensions and savings for you.. though arguably, you will get better returns investing your inheritance than you will from paying off your mortgage.

Even if all money is joint money... it should be in both of your names.. including pensions.

Even up your pensions and then remainder to pay down mortgage. If you then have more disposable income ensure that your pension keeps pace with your husbands.

Also sort out his and hers expenses nonsense - joint pot, all expenses out, agreed personal spends to each of you.

@Knownbyanothername

Definitely pay if the mortgage,You will save far more in interest than you would earn in an Isa/ savings account. The money saved then be used for holidays/ savings etc and you own your whole house!

If you are prepared to invest for 5-10 years A return of 10-15% p.a. is easily achievable on a stocks and shares isa or a world fund .

Great advice here, thanks all. I need to look your replies over again in the morning and will keep everything you've said in mind when the time comes. DH and I had a chat tonight. Sounds like we could pay off the mortgage (not a huge amount left to pay) and have some left over for investing. He's totally on board with savings in my name being beefed up to the max and has already suggested investing his bonus in my name which we will do anyway.

@Knownbyanothername

Definitely pay if the mortgage,You will save far more in interest than you would earn in an Isa/ savings account. The money saved then be used for holidays/ savings etc and you own your whole house!

@Knownbyanothername Do you mean a cash ISA? This doesn't seem right for stocks and shares ISAs in my experience.

We are coming in to an inheritance too, just waiting on all the legalities. We know some of the figures but not all. We know that from one part of the estate we have enough to pay off our mortgage.

We too have been wondering whether we should pay off some, most of it or all the mortgage. We are rather young to be in this situation.

We have decided we will pay it off. My dh is also going to retrain and finally get a job that pays well and that he likes. It's actually life changing for us. It also feel strange and sad as it's not our money. I don't know it just feels a bit wrong to me. His dad worked so hard and could have retired a bit earlier but he got ill right after retiring, so sad.

I'd say pay off your mortgage then if u want to do anything else u can save up ur monthly mortgage payments to get what u want. I don't think Ul ever regret doing that. Investing is risky, savings rates are terrible. Maybe a buy to let if u can be bothered with the hassle. That wld be a gd investment further down the line.

If you pay off the mortgage you can save potentially 10s of thousands of pounds in interest, that monthly money can be invested. Plus the value of you house is likely to go up with time too.

'Saving tens of thousands in interest by paying off your mortgage early' hasn't been the case for over a decade so people really need to stop saying that.

Mortgage interest rates are around 1-2% at most and may even be lower than that. Up until a year or two ago, we got more interest by leaving the money in current accounts and still do on a small portion of money, let alone investing, which has probably returned 5-10% pa or more over the same period, so the 'saving tens of thousands in interest' should be offset by losing many times more than that in investment growth.

I would level up your pension so that its equal to whatever DHs will be at retirement.

I’d then put a small amount into the mortgage just to shorten the term

Whether you pay off your mortgage versus investments I think comes down to your appetite to risk.

Yes investments can return more long term but if you lose your job or have a serious illness and the stock market dips at the same time (think when covid hit and the stock market took a massive dip) you will still have a big mortgage and your investments will have dropped so not a good time to be cashing them in to pay the bills.

I invest but I can afford to keep my investments in long term no matter what happens to my job or health as I no longer have a mortgage because I paid it off early. For us that was the right thing to do because we wanted to make sure that we could weather long term unemployment or illness first. Now we don't have that risk over our heads all disposable money is thrown into investments for retirement.

Interest rates are so low at the moment and money is cheap. I wouldn't pay off the mortgage. You'd be better off investing the inheritance, making more money and using that to pay off the mortgage in a few years if you want to.

Interest rates are so low at the moment and money is cheap. I wouldn't pay off the mortgage. You'd be better off investing the inheritance, making more money and using that to pay off the mortgage in a few years if you want to.

I think only a wealthy person would advise this. Who knows what’s around the corner? Investments could crash next week and take years to come back up, it is with risk. Paying your mortgage off is no risk and shouldn’t be dismissed. It will change her families life forever.

Is he paying off a good chunk of the mortgage, but you've said he has significant savings, he has a a good pension, to me that should be equaled out, so that your pension is decent and you have savings too. Despite him being the main earner, it doesn't mean you shouldn't also have some future financial plans.