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 would do the 10k this year and next do the improvements but dont get carried away you could blow it all set an amount and stick to it say 40k. Put the rest bar 5k in a high interest savings account until the 4 years is up then pay off.

I just don’t know any investments that keep up with inflation at the moment. Not cash accounts, stocks, bonds, property….

Even more important to push it through the pension sausage machine.

The problem with the pension thing is that you can only put a max of £40k pa, or your earnings, whichever is lower. And they will undoubtedly already be paying some in.

You can bring forward unused allowances up to thee years old.

If you're a higher rate tax payer it does work really well. I use it to keep me under the higher rate, so I'm gaining a lot even without investment returns.

But we've simply not got enough information, how much do they earn, what other savings do they have, what is their pension situation. Etc.

I was thinking they could each for the next four years and they could access it when their mortgage comes of its fix.

You are right, we don’t have the full details. I’m just assuming that they haven’t been using the full £40k, most people can’t.

You have some quite big expenses with renovations and uni fees so I’d compromise and pay about 60k off the mortgage to reduce the term and therefore reduce the total interest

I would overpay by the max it allowed each year then split the rest across 2 accounts one a fixed term saving account and the other instant access.
If you have 4 years left on your term I would then look again at paying off when the term ends you can earn a decent amount of interest in that time when your fixed rate ends there is no payment charge.

That's a bloody good return on 50 quid !!!!

When we found ourselves able to pay off our mortgage - due to a downsize - we did it, but against the advice of our accountant. We were both very clear that feeling housing secure trumped anything else; and the house was a rising asset in itself. I have never regretted that decision.

This is exactly what I would do.

How low is low? I definitely wouldn’t pay it off if under 2.5%. You can get bonds which are paying close to 5% now with no investment risk.

so for £10k paid off at a 1% rate you’d save £100 in interest on that portion in a year but could make £500 in interest. It doesn’t feel worth it paying an ERP at all (but you might want to pay more off in 4 years at the end of the low rate fixed).

Pension would likely give the best return purely by getting the tax relief.

i used to be really keen on overpaying the mortgage but have come to the view that longer-term pension or a Lisa is likely to be a better use of the money but that is quite tough psychologically and for some people peace of mind of paying down the mortgage would outweigh greater returns on paper.

How much are your monthly mortgage payments? I assume more than £200 per month?

It's a question of risk really. Generally speaking you can afford to take more risk at a younger age, and the closer to retirement the less risk you should take.
At your age, i'd consider:

• Mortgage rates are 4-7% depending on LTV. If i were investing rather than paying that mortgage off, i'd be looking for minimum 8-10% yearly ROI via stocks & shares due to the increased risk. This is absolutely achievable over a 25 year period, but much more uncertain over a 5-10y (thinking about your age & when you'll be looking to divest).
• S&P500 short-term (2-5y) likely to crash as the Fed & international markets get hit with reduced liquidity. Would you be able to afford to keep the roof over your head if you lost your job and your stock options tanked?

While i can't crystal ball guess where equities and gilts are headed, i'd always treat it as a casino where you don't want to gamble more than you're prepared to lose. Just like how i lost all my money in Crypto, but i barely even noticed it since it was money i was prepared to lose.

I suspect if you're in any way risk averse (like myself), you'd want to pay that mortgage off completely with the funds and that frees you up to take risks or live a different lifestyle.

You need to get advice from your financial advisor because we have no idea how large or small your pension pots are. Also if you are planning on downsizing/moving in the next 5 to 10 years or if you want to stay in the current house for the rest of your lives. All crucial information to get the right advice.

I was in your circumstances last year op.

I have -

Paid off half (at the end of my deal) and rearranged a fixed rate for the rest over the same term.
Worked out how quickly I could pay off the rest if I kept my monthly payments the same so I am doing that and paying the extra allowed monthly payment for as long as I can
Paid £28k for house improvements
Bought a new to me car
Gone on a great holiday
Put some in premium bonds for the kids (but if they win its going in my 'pot')

That way I know I can keep my mortgage payment the same as before but am overpaying while I can.

If I were you (already tied in with ERP) I would -
Get a calculation for early repayment fees from the bank so you know how much you're looking at if you choose to pay off OR put in savings.
Make the max annual overpayments.
Check if you can also do additional monthly overpayments which will reduce the term and ERPs if you do decide to pay it off later.
Do the house renovations - in my mind it's easier to fund this out of a cash lump sum now and keep going with paying the mortgage than have to raise the funds again
Treat yourselves - go on, it's a lovely windfall.
Put the rest in accessible high rate savings (higher than your mortgage) so it's not being eroded.

Put it in an offset mortgage.

You'd need to look at how much the early repayment charge would be from your bank to pay your mortgage off early. Then look at how much money you'd save in interest by paying off early.

More than likely, the early repayment charge will be LESS than the interest.

£110,000 is an awful lot of money in your 50s and this wouldn't even be a question in my mind.

I would pay off the mortgage in total as step one. Then you automatically have more free capital AND a totally secure base: you cannot ever be evicted. Save what you are not spending into ISAs for a couple of years, and then you can improve your home, or stuff money into your pension fund. Sensible improvements into energy efficiency, massive insulation should save you spending unnecessarily on bills.

I’d put £60k in Atom saver bond and £55k in Tandem and you’d get £431.25 interest per month you’ll need to pay 20% tax on interest over £1000

Following!

Sorry for your loss.

Would there be an early repayment penalty for paying off the mortgage in full? If so how much would it be? You'll need to weigh up fee v money saved on interest.

Based on what you've said, I would overpay as much as possible without incurring fees (I think you said £10k per year? Is that per tax year ie you can pay £10k before end of March and then another £10k in April?) and would also do the renovations.

What are your pension pots like? Perhaps you could top those up?

I’d over pay and renovate.

Depends on your mortgage rate - if you’re still on a low fixed rate, you’d be able to make much higher rate on savings at the moment.

Completely agree with this.

I am really surprised at the advice to someone who has just inherited over £100k not to make anything other than essential structural improvements to their house. We spend so much time in our homes, and making your home work for you (both practically and aesthetically) is an excellent investment.

I'm not saying spend £100k on unnecessary improvements, but let's say you spend £40k on improvements that are essential and will add value, and maybe another £5k on improvements that are not essential but will help you enjoy your home for the next few years, that's a good use of a relatively small portion of the money, in my view.

I would pay off the mortgage, it's a great feeling being debt free and actually owning your house as opposed to owning the debt.

I'd pay off 75% of the mortgage and then keep the rest to treat yourself.