We have inherited £115k and we owe £110 on our mortgage - should we pay off entire mortgage ?

[Munichfam5]

I am 53 and DH is 55 and we are tied in to a low mortgage rate for the next 4 years

So i am not sure what to do ,?

Also - we can pay off £10,000 this year and £10,000 next year with no fees

the other thing is that we need lots doing to our house and so it would be good to spend £40,000 approx on doing those things ,,, ?

We have 3DC’s - 2 at uni and one a college so we are financially supporting them

A friend said we should invest the money and then we’ll get the interest - he said around £200 a month ,,?

I think we need to speak to a financial advisor, but Any advice appreciated!

Tia

I’d pay off as much as you can each year without charge. You could also call and ask if you can reduce the overall mortgage term which would increase your payments to pay off the capital faster without you incurring early repayment charges.

I’d do the repairs if they’re causing problems. It’s no massive issue if you’ve still got a small mortgage left in 4 years. Any that’s left speak with an IFA to see where you could invest until the mortgage deal ends.

Get the renovations done ASAP

The cost of building work is going up at an alarming rate, so waiting 1,2 or more years could see that £40k cost of doing the work double

Overpay the £10k this and next year, and have a think about your bigger financial priorities while you leave the balance in a stocks and shares ISA, or a notice account

Do you both have pensions? If so, what is it projected to give you?

Invest in S&S isas. £40k each. Now and in April (new tax year). In a two or three income funds that are generating about 4% dividends. No tax on dividends, no capital gains tax. Access when you want.

I'd over pay on the mortgage, and do the renovations.

I'd pay the extra 10k a year on the mortgage, put £10k into savings/isa for each child, do the renos and save the rest.

To all those saying to pay off the mortgage, some thoughts.

• Money is illiquid in a house, if you need it for any reason, it isn't easily available
• House prices falling - You are investing in what is essentially a falling market
• I personally would pay £20k each into ISA's, what are your pensions looking like? That may be worth considering as you would receive 20% uplift automatically on your investment. If they house repairs are essential then that would be a good shout. Then the balancein a range of deposit based savings accounts.

It is not a clear cut, and is driven by your attitude to risk and longer term goals.
Seek professional advice, look for Chartered advisers that offer cash flow modelling. THey will be able to show you what each scenario looks like.

Also, don't take income from investments unless it is needed. Just because you can, does not mean you should.

It does depend on your current income and what other debts/savings and financial obligations you have.

I’d pay the 10k off the mortgage this year and next. Then I’d do the work worth 40k.

I’d split the remaining money between investing it (S&S isa as mentioned above is a good plan) and some fixed rate high interest savings, currently interest rate is around 5%. Watch the tax on those though, whose name to put them in can make a big difference depending on your tax rates.

Maybe put some money aside for each of your kids in a savings account to help for a house deposit or something?

Once your mortgage rate ends I’d probably throw a chunk of money at it.

OP I was in the same situation 6 months ago, almost identical.

£20k for new windows/doors etc
£10k for other long-awaited home improvements
£max overpayment for last year plus this year plus overpaying by £500 a month - the redemption fee is huge on my 5 year fixed rate after only one year but I can overpay 10% lump sum PLUS £500 a month until I'd break even.

Put some away for the kids
Nice holiday.

I've put the rest away in higher interest but keeping a close eye on the interest rate - currently higher than my mortgage rate so I'm actually better off keeping 8t there for the time being.

I would put money aside to do the renovations- ensuring your house is in a good state of repair and best uses the space available is an investment in itself.

Also worth putting money aside for the children's uni expenses.

I'd then pay off the mortgage with the rest- it's often harder to get more interest from savings and investments than you're paying out on debts, but you may need to look at the impact of early repayment fees. Might be better to pay off the maximum overpayments allowed each year.

Get expert advice. You have a few variables going on and your needs and wishes are unique to you as a family.

But please do not listen to your friend - interest comes from savings, not investments. Plus, the market has been rubbish for a while now - most of this year in fact - so you could see your funds diminish. You might hit the upturn of course but it's a gamble.

House prices falling - You are investing in what is essentially a falling market

Paying off your mortgage is NOT investing in housing. It is paying off a debt. You gain/lose exactly the same amount from house price movements regardless of the amount left on your mortgage.

How long would it take you to save up the £40k from the equivalent of your monthly mortgage payments? 3, 4, 5 years?

I think for me and Dh we would spend the £40 doing work to the property, get the house to where you want it to be so it doesn't take up head space or money in the future. Plus it could increase the value of your home which you may downsize from.

Work out when you will stop financially supporting the 3 DC in terms of whilst they are at uni/college. ie for us Ds1 is costing £5k a year because he lives in uni accommodation, when he is here after graduating he will not need that much as he should be working and his accommodation is free. This is extra money can go toward paying off any remaining mortgage.

I would over pay both this and next year on the mortgage to the maximum without penalties. I would invest some probably locked away for a couple of years to get the best return. I would speak to a financial advisor but honestly the information is available online to all. Also think about your pensions and when you think you want to retire.

It all depends what your plans/goals are, home improvement or early retirement etc. I am 53. Current plan is to get ds through 5 years of uni then retire as early as possible after that (probably somewhere around 60-62) so all my financial plans are focussed around that.

I would look into paying off huge chunk of mortgage and then look at putting mortgage monthly payments into AVCs to pump up pensions and maybe retire earlier than expected.

But I have a lower risk attitude to investment and wouldn't touch stock and shares in this volatile market, and as you come up to retirement I think they suggest you lower your risk too.

If you were able to support the dc through uni before the inheritance, has anything changed?

I don’t know enough about mortgages to comment but what I would definitely be doing is putting £10k+ for each child into a savers account which they can use for a deposit on their first homes.

Overpay, do renovations, have a holiday and enjoy life... With all the economic worry it could really ease your stress over the next few years knowing there's a fall back for not only you, but your kids too, if needed.

So much depends on your mortgage terms - the length left, the ERC and what the interest rates are in 4 years.

I would overpay by as much as you can for the next 4 years and then work out whether it’s cheaper to remortgage at a likely higher interest rate or to buy yourself out. (Or even potentially sell at that point).

As others have said, if you pay more than the allowed amount now, you'll have to pay early release penalties. These will be substantial.

What is your mortgage rate?

MSE has a really good calculator - MSE calculator where you can put your mortgage in, overpayments and compare it to savings.

I've used an example of £110k at 2.5% with a residual term of 15 years, paying an extra £10k per year. At the end of 3 years your mortgage without the overpayments would be £91k, but with the overpayments is £60k (i.e. not a massive interest saving).

Alternatively, if you put £110k in the currently offered 3 year fixed term savings account (you could put some in ISAs but there is a maximum amount) from Metro, at the end of the deal you'd get back £119,900, so could clear your mortgage completely and still have £29,000 (£120,000 - £91,000) left to do your refurbishments then.

It really does all depend on your mortgage interest rate but on the basis of the above comparisons I'd not pay anything extra off and stick it all in a savings account with a decent interest rate and revisit it in 3 years' time.

Just to throw in a curve ball - if you would like to help your children with a house deposit there may never be a better chance to put the cash aside than this.

If your mortgage and lifestyle/outgoings are affordable and this is something you aspire to do then consider getting essential renovations done and (quietly) putting the rest of the money to one side for when the time is right.

Overpay, but do the renovations etc too.

Mortgages - even at current rates - are low interest compared to other loans. My mortage is currently at 3.1%, current bank loan offer (checked quickly for this thread, am sure there are other offers) is 5.9%. So if you're going to need to borrow for uni fees/work on house inheritance probably best kept for those things. But I'd deffo do max overpayments.

Sorry for your loss.

If you decide to put some aside for kids’ house buying deposits, look into doing it as LISAs so they get the government bonus - you could do £4k for each of them this tax year and another £4k in April. They have to open the accounts themselves.

If either/both of you are higher rate taxpayers, it might be wise to pay some of your inheritance into pensions and get the tax relief. Worth considering even as basic rate taxpayers.

Ho many years do you have left on your mortgage? Because if it's a relatively low number, the vast bulk of your monthly payments are going to the capital anyway if you're on a low rate.

Overpay the mortgage to the max amount. Pay for the renovations. And anything left you can save or invest. Then, at retirement, I would use the money to pay off the mortgage so you don't have that expense.

Get all the work done on the house, you already cope with paying your mortgage , improving the house will benefit you everyday.

I don't think you understand the principle.

Argument sake, your home is worth £150k, you pay off the £130k mortgage.
Your net return is £150k - value of the home

In the above scenario, your home falls to £110k
Your net return on the asset is now only £110k

You are moving the 'cash' asset into bricks

So it is a falling asset, you are betting that the value of the house will not fall lower than the amount of capital you inject into the home.

If the OP were to invest / then the same principle applies.
If they were to save the money, then they have inflationary risks etc

To say paying money into a home is not investing, is incorrect. House purchases are investing, people jsut do not see it that way. If it were not, then we would be a nation of renters. We buy a home, on the assumption it will increase in value.

I'd pay the maximum you can pay in overpayment per year, and do the renovation