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.

@Blossomtoes

What if you pay off your mortgage then you have serious illness and need cash to replace an income. How do you pay your mortgage if that happens? What if you want to move but can’t due to negative equity The same applies if you still have a mortgage. Does your mortgage offer a 20% increase in your monthly contributions? No, that’s why I suggested paying it off and recycling the payments into your pension so you get the 20% tax benefit. Does your mortgage pass across as a tax free lump sum to your spouse on death to do as they please? No it puts a roof over their head. Does your mortgage offer you a diversified investment portfolio, potentially tax free? No it offers you a cost free home for as long as you need it.

Before you berate others for their suggestions, please think through yours I did, unlike you.

What if you pay off your mortgage then you have serious illness and need cash to replace an income. How do you pay your mortgage if that happens?

We, with the significant amount of easy access cash reserves you set aside as a balanced financial plan.

It is hot just a mortgage that needs covering, bills, council tax, shopping etc.

I am not sure that Tesco and EON allow payments with house equity.

Putting all of your liquid assets into a house is foolish at best.

Please think through ALL scenarios before committing.

@Hazelnut5 how much tax do you pay on the first £12500 you earn?

Most people pay zero - so you can't get tax relief on zero payment, thus my suggestion of the amount being above £12500. Obviously if you have a different tax code etc then you could lower the amount to gain further tax relief. In the main though most people will understand the personal allowance and tax free amount to be £12500.

Also remember when seeking professional advise it will come from a person that isn't going to gain a commission from you paying extra into your company pension, therefore they will have a vested interest and the advise might be slanted. They will have to tell you to place into company pension first - but, thats about the limit and you might not get the full story

@ivykaty44 You get tax relief on money paid into a pension even on money below the tax allowance. If you don’t earn anything you can pay in a maximum of £2880; tax relief is added taking that up to £3600. If you earn £10000 you can pay in a maximum of £10000, but in fact you only need to pay in £8000 and the tax relief takes it up to £10000. Tax relief isn’t a very good name for it as for low earners in particular it doesn’t bear any relation to the tax you’ve paid.

It’s actually a very poor financial decision to pay off your mortgage early with interest rates being so low. Although I appreciate the psychological GA your shouldn’t be underestimated.
Your mortgage interest rate may be 1-2%. But you can easily make 20% annual returns with investments if you have some financial knowledge. It is really a no brainier.

I would also max out your annual pension contributions if the sum allows, as not being depressing, but you never know what may happen in your marriage in the future.

*impact not GA your

Your DH pays the mortgage… you pay for holidays and clothes… so it doesn’t sound as if all this comes and goes from a joint account?

If your inheritance pays off the mortgage will he then have more disposable each month?

You have BOTH paid the mortgage because you did the childcare that enabled him to earn.

Definitely build up your own pension: a great tax efficient way to make the best of the money, and also means that your dependence on DH’s earning power, even beyond the child rearing days and into retirement, is mitigated.

Do you have a feeling that you would like something for ‘you’ from your dear Mum’s inheritance? I think that is natural…maybe something not as extreme as a whole holiday cottage, unless your household can easily afford it.