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’m amazed at the number of people here talking about putting the money into savings accounts without considering inflation and the way that will erode the return.

Like others I’d be prioritising paying off the mortgage, particularly in your 50s. Having that security is priceless.

If you want to mix and match, putting money into the pension would be a good option. You can claim 25pc of it in a few years time. And draw down the rest.

But I would only do that if you are comfortable with your living situation. How many more years do you want still to work? Are you comfortable paying off some of the mortgage as usual for the next ten years? If you are then you may be able to swap paying a housing loan at 2 or 3 pc for pension contributions tax relief at 20 (or more) percent.

Of course - with all of this you should take advice - but these would be things to think about.

My advice would be to give yourselves some thinking time for a few weeks before you do anything else.

Start by asking yourselves when will we retire, what money will we have to retire on, will we still be in this house, will we need to have done the home improvements by then, will the children be finished study, will we want to give them help to buy, will we likely have had more inheritance by then or is this the only one.

Once you’ve answered those questions start by looking at what you need to do between now and then to get there. Although overall return is important financially, so is cash availability at the right time so the highest rate isn’t always the best decision.

My first thought will be using the money for deposits for mortgages for the children, assuming it’ll be enough where you live.
When they move out, you downsize.

@wildseas It's OK, the OP has had about 4 months thinking time, she asked the question in November. Although it would be interesting if she did come back to tell us what she did in the end.

@Onemorewaferthinmint I'm amazed at the number of people who missed the vital fact that the OP was year into a low fixed rate mortgage, therefore it is very likely that her mortgage interest rate is around 1%, and the value will be also eroded due to inflation. It would be silly to overpay a 1% interest mortgage when you can get 4/5% by saving it instead.

It would be silly to overpay a 1% interest mortgage when you can get 4/5% by saving it instead.

is it always as straightforward as that?

@bibbybox

Yes, with a couple of caveats.

Firstly if you have savings and need to claim UC, you'd be expected to live on the money before being entitled, which you wouldn't be if you'd used it to overpay your mortgage so would have the same assets on paper, but arranged differently. However, as it appears that, for the purposes of benefit entitlement, the OP does not have dependent DC, this seems very unlikely as they'd both need to lose their jobs before they'd be entitled to UC, and it would be very minimal, as it would only be the basic amount. So unlikely to be worth consideration.

Secondly, if they're the type of person who can't help but spend money they have available to them, it might be worth overpaying instead, but it doesn't change the interest rate maths and the fact that the OP is asking the question instead of going out and booking a big holiday and buying a couple of flash cars suggests that she does intend to use the money wisely.

Although depending on what cars they currently have and how many miles they drive, it could be a worthwhile use of some of the money for an electric car.

Our mortgage is 2% but i'm sure a calculator worked out is was better for us to overpay. Maybe it was due to bring higher rate tax payers?

If you're intending on staying for a good few years then I would do all the renovations & add things like solar + battery, extra insulation, double/triple glazing, thermal curtains, water collection etc and consider heat exchange unit etc. Basically future-proof against running costs.

If you might move in the next 10 years / for retirement then I'd spend the minimum on renovations such that they'll still look good when you sell, and maybe consider solar as that'll add instant saleability as well as reduce costs of heating water.

The remainder I'd pay off the maximum overpayment each year, and take advice eg invest wisely in stocks and shares ISA etc so you maximise earning.

@BarbaraofSeville - oooops I missed that!!!

I'm in a similar position, my mortgage is fixed at 1.2% for the next 3 years so I keep putting the money into the one and two year bonds and saving accounts which are popping up at 4-5% at the moment. We'll only have 5 years left when it comes to re-fixing it again so I'm waiting to see what happens with mortgage rates in the meantime. You're probably already aware but, whatever you choose to do, remember to keep your individual account balances under £85k per bank (£170 joint account) as things are so unstable at the moment.

I would pay off the amount you can without getting an early repayment penalty this year. As for the rest, how low is the interest? If the mortgage is 1.5% but you can get a savings account on 3-4% then you're better off getting the interest. If your interest rate on mortgage is closer to the savings rates then you need to do some maths.

Atom has 6, 9 and 12 month fixed savers at around 4%, HSBC has an online saver thats 3.25% on up to £10,000 if you don't touch it, but is still instant access.

I'd probably:
10K - pay off mortgage
10K - in an atom saver for the correct length of time to pay off mortgage when you move over to the next year
40K - renovations
20K - easy access savings
10K - enjoy it!

Leaves 25K I'd put in savings somewhere or pay off any other debts you have. There are also some high interest regular savers atm such as first direct (7%).

But you could just pay off the mortgage now, save yourself ALL the interest over many years, which does add up, even if it's only a low rate, and use the money you would have spent each month from your salary to drip feed into investments. You really wouldn't be wise to throw it all into investments all at once, that's such bad advice as you could time it badly.

But I'd only do that if I didn't need access to some renovation costs. So I'd do the reno first.

It's up to you really. But, when we were in the same situation, it was a no-brainer for us. We paid the mortgage off (we had already borrowed more to renovate). So we had the peace of mind that this roof over our heads was truly ours no matter what, even if we lost our jobs or mortgage interest rates suddenly shot up. It's security. Secondly, it meant we were no longer paying loads out in interest over the long term. Thirdly, our monthly disposable income went up immediately, and gave us choice on what to do with it eg we could time opening a long-term fixed savings account until the interest rates were much better or stock market was less volatile. In the mean time, while we were waiting, we put some each month towards a nice holiday each year.

It depends how you feel, what kind of pension savings you have, what the stock markets are like (currently volatile, BUT if your mortgage was paid off, you may not mind risking investing your extra disposable income each month by buying low now)

Yes, pension is a VERY good idea, tax-wise. But can't access it till 57 ish (depending on your age). And there are limits each year.

True.
£60k could go into each spouses pension now. But each spouse would need at least £60k of income to do so.
A lot depends upon how old you are OP. If you are OP. If you are in your late 40s or older, stuffing it inna pension is very attractive.

I don't think the £60k pension contribution comes into effect until the new tax year begins. My accountant wasn't sure last week.

Yes, the new tax year, which is three weeks away.