To pay off mortgage or not

[Raindancer411]

Have an offset mortgage and we are now at a point what's in the savings is also more than what's owed on the mortgage itself. The money in the savings is an inheritance I had marked for my pension as I never had one...

What would you do? Pay off the mortgage and save what we were paying a month on the mortgage? Or keep the lump and pay a monthly mortgage.

I like the security of knowing I have a large lump in events of hubby out of work or issues we need to fix with the house, is if not, that I can use this towards an inheritance.

Also we have life insurance that if anything happens to either of us the mortgage is paid off (and I take it any savings would remain extras).

We have an early repayment charge on the mortgage until 2024.

Advice please...

If it carries on as we are, by the end of the fixed term we will still have 97k outstanding on the mortgage (if we keep the lump sum). Both of us will be mid 40s at that point too.

It sounds as if you are not working/earning other income at the moment. As I'm sure you are aware, that means you are limited to putting £2880 in your SIPP. I would certainly do that if I were you but it will be a relatively small amount compared to the lump sum.

Do also consider tax if you are moving money to savings accounts and they are not in ISAs. Now that interest rates are rising, more people are going to find themselves paying tax on interest and if you have a sizeable chunk you may find you do too, especially if your DH is a higher rate tax payer. Certainly remember to include it in your calculations.

Personally I wouldn't put money in fixed rate savings just now as I am sure that there will be better rates on offer soon with the base rate rises.

If it was me, I'd just reassess closer to the end of your fixed term, might be a different economical world by then.

Yes I am not working at the moment. Hoping to once the youngest is in full time education.

Yep, that's why we opened my SIPP this year and paid in the max for the last tax year. I can put my next 2880.00 over any time now.

Yes we took the interest into account but when I have previously done savings amounts, I have had a form to fill out that was something to do with that? I was going to ask about it when I set up the next accounts but waiting to see what they do after todays news.

Tax on interest hasn't been on the radar for a while because you can earn £1k interest (£500 if higher rate) interest before you pay it. Whilst interest rates have been so dire that's not troubled most people. It's just that if you're moving tens of thousands to savings whilst interest rates are rising you might be in the position where you do need to think about it again. That's partly why offset mortgages used to be so much more popular when rates were higher - you were effectively getting 'tax free interest'. It'll probably not be a major issue for you but do take it into account when you're looking at the difference between your savings rate and mortgage rate.

Check and see if you can overpay monthly above your normal monthly payment without incurring early repayment charge (most mortgages allow around 10%) If you can I would overpay by the maximum amount per year. You then paying it off quicker but not incurring penalty to do so. As the interest rate is low and fixed unless the remaining mortgage amount is very low then better not to repay it until early repayment charge expires.

If you inherited the money and you are economically inactive, I would continue to pay into your pension and offset the remainder in a sole account belonging to you. That way you would have no mortgage payments so family expenditure reduces, but should the unexpected happen - divorce, redundancy, severe illness - you would have ready funds in your own name.