Inheritance options

[hohum12345]

I will be fortunate enough to shortly receive £100k inheritance and am trying to work out how to put it to the best use.

Debts:
£190k mortgage (out of fixed rate and on a crazy high interest rate)
£15k personal loan

Need significant amount of work doing on the house (would easily swallow the whole £100k!)

DD has one year left at private school £15k.

No emergency fund and DS off to uni in September.

Selfishly its also important to me to at least reserve a small amount for a personal token. Maybe a piece of jewellery or modest holiday.

I'd stash 10k in emergency savings.

15 to clear personal loan.

15 put away for school fees.

1K in premium bonds and every time you get a win you'll be smile and thank the person you inherited from.

5k pre-uni holiday with the kids.

1K bespoke item of jewellery

Put the rest in your mortgage. Find a good fixed rate.

Save the money you'd be spending/school fees and gradually do the house renovations.

I would put the bulk of it towards mortgage to lower monthly repayments. You must have had a way to pay school fees before you knew you were getting inheritance?

I agree a piece of jewellery is a lovely idea and you should def do that!

Clear the personal loan first and keep enough money to ensure you won't need to borrow (via personal loans / credit cards) for the next few years as that would incur higher interest rates than your mortgage.

Paying off a chunk of your mortgage makes sense, but balancing how big a chunk versus how much you spend on holidays / renovations / jewellery is a personal choice.

I like @Gazelda's suggested breakdown 🙂

Depends on how flexible your mortgage is, can you use the money to pay off some of the mortgage, with the option of drawing down on the mortgage as and when you need funds in the future? You can do this with an offset mortgage, for example.

1. Clear personal loan

1. Set aside £15k as parental contributions for university (assuming dc only get basic loan).

1. Pay off a chunk of your mortgage eg £50k and remortgage at a better rate.

1. Family holiday- do you really need more stuff, memories are priceless. Perhaps buy a small piece of jewellery as a keepsake, say £2-300 level.

You'll have £15 a year extra next year so you should save this into an emergency fund combined with whatever is left and the university money

Thank you for your replies, lots of food for thought.
Had only really considered clearing a big chunk of our mortgage, not thought about putting a pot aside for uni, emergency etc.

I agree I don't need more "stuff" and maybe a holiday would be better idea.
Also like the idea of a few premium bonds. DM was a big fan and it would certainly make me think of her if I won a prize!

Use up your annual 20K tax free allowance and invest in stocks and shares ISA. Keep money aside to pay 30k debts and fees. Put 10K in emergency fund and use 40k to reduce your mortgage repayments ( assuming no early redemptionfee). You might be able to get a better deal if your LTV loan to value is reduced.
Another possibility is to keep some of the money back to supplement living expenses mortgage and increase you pension contributions so that you invest your salary prior to tax making it very tax efficient (+33% or more)

I think part of your feeling unsure what to do with the money, as that you don’t have a clear financial goal you are working towards. And then a plan to met the goal. Once you have these, where to put the money would be easier, as you are meeting your planned steps on the way to your goal. I would spend a bit of time working out this first.

Most people’s overall goal is to get to retirement age (say 65) with no debts, a paid for house, and enough in pension/savings to give them an income throughout retirement at the level they want. Assuming this is you, then something like Dave Ramsay’s baby steps would get you there. Read up on them, but to me that seems like it would be:

(first set aside $XX for your remembrance)

1. save £1000 emergency fund
2. pay off all debt except your house
3. save 3 months worth of living expenses as an emergency fund (£1000 step one is part of this)
4. contribute 15% of your income towards pension on an ongoing basis
5. save for kids college (big in the US - less so here. I’d suggest making this help with kids house deposits instead, and doing it AFTER your house is paid off)
6. pay off your house
7. live and give generously

In relation to some of your specifics, you have been funding your kids to date from your salary, so I would continue to do so from your current income, NOT this windfall. Work on the house - pay it off first, then save to fix it up in stages. If you follow the above steps, a large portion of this money will go towards your mortgage, meaning you’ll have it paid off much sooner and then be mortgage free, OR if you lower your repayments, you’ll have more day-to-day money, and can cash flow the work to be done in the house. Either way, this is a more secure position to be in than to not spend it on the mortgage and instead fix the house.

I know what I have suggested it very boring.

I know it would be tempting to say ‘we only live once! Let’s make memories!’ But perhaps instead think, how your Mum’s money could be used as one last act of maternal love, and give you and your family long term stability, a boost towards retirement, and an emergency fund to see you through life’s worst moments.