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 don't think you understand the principle.

If you are choosing whether to buy a new house then your post would make sense. It does not make sense when you are discussing paying off a mortage on an existing house.

If a house worth £150k drops to £110k you have 'lost' £40k regardless of whether you have a mortgage on the property or not.

Making a decision to pay off a mortgage is about whether you pay a debt off early or use the money elsewhere. It is not a decision to invest in the housing market.

Totally wrong again, you are ignoring the cash injection.

In your example, the money is paid into the home, that cash has gone, along with the equity in your home. I.e the cash, is paid into the asset, which falls in value. Whether it’s a home, a car or a case of wine.

If in my scenario, the home falls by £40k it’s only a loss, if the house is sold. The OP still has access to the £100k cash. In your example, they have ‘lost’ access to 100k in cash, which now is only ‘worth’ 60k.

Put the house in good order as a first priority, help the children if they need it, pay the mortgage off next, investing it may not get a better return than paying mortgage.

If you are saying that you have lost the use of the cash because it is now 'tied up' in the house then of course that is correct but that is not the same as investing.

Paying off a mortgage is not investing in housing.

the cash, is paid into the asset, which falls in value. Whether it’s a home, a car or a case of wine.

This is your error. The cash is not being paid into an asset it is being paid off a debt. Your ownership of the asset is identical whether or not there is a debt secured on it.

A mortgage is simply a loan against a property it’s not an investment in that property. You could invest the mortgage money in the property - but you could equally spend it on something else.

I wouldn't go for investments either, if there is any risk they will go down. You are in a great position, I wouldn't jeopardise that just for the possibility of a higher return, it's not a given that s&s will rise in the shorter term. You could do the work on the house, keep the cash in savings accounts and pay off the maximum before ERC for the next four years, then pay off the balance if you have anything left. How much is the ERC if you pay it off? Would you feel better to pay if off? Is the work on the house cosmetic or vital?

I'm the same age as you and realising life is short so I would:

Overpay the mortgage for next couple of years. 20k
Do renovations 40k
Take DC on an amazing never to be forgotten holiday 20k
5k per DC then rest in easy access savings account.

Our remaining £30k of mortgage is fixed at 1.1% so when we inherited from FiL, it wasn’t worth paying off.
I’ve recently put £30k in a 2 year 4.65% fixed savings account, so it will make nearly £3k in interest, which won’t be taxed as it’s in my name and I’m a non earner so benefit from the higher threshold.
Normally savings interest over £1k a year is taxed but if you are a low/non earner you get more😉
We ummed and aahed about paying if off so when I fixed the rate last year , I upped the payments so knocked 2 years off the mortgage anyway. 5 years to go.

Reading this thread, it’s interesting to hear everyone’s thoughts.

For me, I would invest. Your house is already adding to your asset worth long term, even if we have a downturn for a couple of years. Investing this money will also appreciate long term. If you just pay the mortgage off, you’re losing this opportunity.

Investments go down as well as up particularly in economic downturn, which anyone with an investment portfolio in the current economic climate is painfully aware of.

Ask Martin Lewis, or a qualified financial adviser at least.

Really surprised at everyone who is saying it is obvious you pay off your mortgage. Fair enough for that to be your goal, but if you're on a low rate fixed, it makes much more sense to see if you can find a higher rate on savings. By the time your fixed rate comes to an end, you'll be able to pay off your mortgage and have more left over than you would paying it off now.

When doing the sums just make sure you take into account any tax on income generated from savings so it all depends on how good your mortgage rate is.

The caveat being if you think the temptation to blow your savings would be too much, then pay off your mortgage. Having the savings to offset your mortgage gives you the same sense of freedom but hopefully will get you a better return

Hi, I wouldn’t recommend paying off the entire mortgage as you have to pay early repayment fees and you have a low mortgage rate. If I was in your position I would:

• Pay £10k on mortgage every year for the next 4 years
• £40k for house renovations
• maybe a holiday?
• rest in stocks. Stock market isn’t doing great at the moment which means most stocks are cheap. If you don’t need the money for at least 5 years you should be getting some profit on your investment (only really counts when you’re selling your stocks)

It is worth remembering that buying a house with a mortgage is a leveraged investment, so inherently more risky than a fully covered unit trust investment portfolio.

Longer term, investment would be the way to go, avoiding speculation.

Not everyone feels comfortable with this choice but that would be what I would do.

Benjamin Graham and Warren Buffet. Two names that spring to mind if you want to read into this more.

I think I just saw some tumble weed float past.

Do not overpay your mortgage now. Enjoy the nice low fixed rate.

Make the maximum pension contributions that you can. You will immediately earn a minimum of 20% just by putting it in a pension. Could be as high as 45% depending upon your earnings.

You can access your pension anytime after 55. You can take 25% of your “pot.” Do this when your mortgage comes due. And pay down with the money you have previously saved into it. You can still keep working and saving into your pension after this. You will simply have crystallised some of your pension savings into a crystallised pot.

In this way, you can arbitrage the difference between your low mortgage interest rate, and the high benefit you get from pension savings. Since you are both in your 50s, access is not a problem.

If you lay off your mortgage you may struggle to borrow to do renovation etc. my parents came into some money and paid off their mortgage with the intention that they would borrow to do some work on the house and found they couldn't then get a loan. It's one of those weird loop holes on borrowing where the more you borrow the more you seem able to

I'd do the same

What about your pensions? You could use some of the inherited money to top up your everyday living expenses and start paying in additional contributions direct from your salaries, which would massively reduce your yearly tax bill.

We paid off our mortgage years ago by various means (there was no early repayment penalty) and that decision helped both of us retire early from stressful jobs. A very good decision for us but your circumstances may differ.

Do not invest. Investing is only for money you won't need in the next 5-10 years due to market volatility. I also wouldn't advise paying off your mortgage early (during the fixed rate) due to early repayment fees.

I would get the work done on the house. If it needs to happen anyway I don't see what you would gain by putting this off. Then I personally would keep the rest in the best savings account you can get and see where you are and how high rates are when your fixed mortgage rate comes to an end.

Please do not use a FA they sold Harlequin properties to people they only line there own pockets maybe write privately to Martin Lewis he hasnt got a agenda

Basically, your cash is losing about 7% in real value against inflation, while you pay 1.1% on your mortgage. So your decision is costing you around 8%.