What to do with 100k?

[BasinHaircut]

I have recently found out that I am about to inherit around £100k from the estate of a recently deceased family friend.

This is obviously a huge amount of money, and I am so touched and grateful to have been given this amazing gift. I am determined not to fritter it away, but at the same time life is so terribly short and is for enjoying.

For reference in case it is relevant, we are not wealthy people (me, DH and DS) but we are comfortable. We have no debt (bar the mortgage ~£160k remaining, just entered a 3 year fixed) and we have a reasonable amount of disposable income each month but only £5k in savings.

I have been thinking about what do to with this money and initially I am thinking:

• max lump sum over payments on the mortgage for each of the 3 years of the fixed term (£45-50k)
• laser eye surgery for me (£5k)
• a once in a lifetime family holiday (£5-10k)
• a second car (small runaround) (£10k)
• anything left in savings/home improvements (£25k)

Don’t want to discuss with anyone in real life as I don’t want people knowing my business.

Just looking for opinions on the above and what others might do with a similar amount.

Thanks

That sounds like an entirely sensible plan, but I would also consider putting a small lump sum into your pensions so that it has time to grow and help you in the future.
you can get done really good pensions advice on the money saving expert forums.

@Jammymare thanks. Yes very good advice but we are both civil servants and so we have no concerns about pensions. Otherwise that would have probably been number 2 on the list after paying down the mortgage.

I think given interest rates at the moment paying down as much of the mortgage as you can would be a priority.

But allow yourself a holiday too, especially if you're in the aftermath of grief. Just get very good travel insurance in case you need to cancel for any reason.

Additionally I would prioritise any house improvements you've been putting off to support the value of your home in a declining market eg new bathroom or kitchen

All looks good but you might want to compare investment returns on £45-50k with what you'd save on the mortgage.

Thanks @YukoandHiro home improvement-wise it would be a garden room/cabin to provide a bit more space for DS to hang out with his mates as he gets older, so a lifestyle choice rather than maximising value of the house per se. Kitchen and bathroom are done.

@Bromptotoo a very crude calculation using the MSE overpayment calculator suggests that we could save £20k+ in interest over the remaining term of our mortgage by making these overpayments. I am completely clueless about investments so feel a dip into this would be risky for me compared to a sure fire saving on compound interest over the next 17 years.

thanks for all of these, please keep them coming!

I agree, that seems reasonable. A good mix between paying off debt, savings, spending on sensible things (assuming you need a second car and the home improvements rather than spending for the sake of it) and a treat in the form of a holiday.

The only consideration would be whether you can beat your mortgage rate with savings, but probably not if you've just taken it out. What you can do is, for the portions you will be overpaying in 1 and 2 years time is to put that money into two separate appropriately timed fixed rate products as the interest rate will be slightly better and you'll spread the interest for tax purposes (you should get all the interest paid at the end of the product so counts as earned on that day, but check this). As you are married, you could put the savings in both your names for tax purposes.

If you pay off your mortgage faster or on a shorter term, have a plan as to how you will use the saving on your monthly outgoings. Will you build up savings towards Ds’s Uni days? A treat or emergency pot for retirement, holidays?

If you use this inheritance to save on mortgage, don’t then fritter the savings!

I think a regular overpayment starting now would be a better bet than a chunk in 3 years. You could also look at an ISA - I've found vanguard stocks and shares to be pretty easy to pick up and navigate.

It's definitely worth thinking for a bit before making a decision so don't feel you need to rush. Decisions made in grief are less likely to be good ones than those made once it has faded a bit.

@BarbaraofSeville the second car/home improvements would be luxuries in the sense that they would be lifestyle choices rather than absolute necessities but a garden room for DS to have a bit of his own space to hang out with friends (small house) and second car would definitely make our lives easier as between me/DH/DS we have quite a lot of hobbies/activities that we currently have to limit ourselves on due to only having one car.

@MarshyMcMarshFace exactly that - the savings would be repurposed into increasing our savings. I hate the thought of wasting money just because it’s there.

Give it to me. Next.

@Callmesleepy it would be the max 10% per year overpayment, in each of the 3 years, rather than a lump sum in 3 years time IYSWIM. Any more than this would incur a penalty so seems like the best way to do it?

When my inheritance landed I stuck maximum holdings into premium bonds for a few months, we had the fun of wondering if we were going to win anything , and it gave us some time to decide if our initial priorities were still the same. We were mortgage and debt free, so it was more about holding out for decent rate savings accounts.

transfer over to me. I will double it in 3 months lol

tbh... I would:

1. invest 70k (speak to a good broker or think about starting a business)
2. have an awesome holiday and keep a little (10k) for rainy days
3. if you have laser eye surgery, be very careful and go to someone really really good as people have varying results depending on skill of operator.
4. use the rest for your mortgage to pay off this year

alternatively if your interest rate on the mortgage is >2%, I would pay off as much as possible eg. 85k (still leaving you with some cash) as despite paying the penalty charge, you will save quite a lot of money on the interest you won't have to pay. then your monthly payment will be low (and you can carry on making excess payments to further reduce your mortgage).

what's your interest rate OP? despite paying the penalty you would still save money

eg. if your interest rate is 3% on 160k --> roughly 14k interest over 3 years

if you pay off 80k > they will charge you 1% penalty charge 1.6k + remaining interest over next 3 years 7.2k > total 8.8k

you save roughly 5.2 k

@tt9 ohh that is interesting maths! Thank you!

we are on 4.1%, not sure what the penalty charge would be for over-overpaying but that’s food for thought.

'Interesting' as in wrong as if the interest rate was 3% you'd be best putting the money in 1 and 2 year fixes until you can pay off without penalty.

You can still do this on a 4% interest rate. Fix at 6% and earn more interest than your mortgage costs on the money in savings and pay off without penalty using your annual 10% allowance.

Thanks @BarbaraofSeville i will have to do all of the maths I think.

I hadn’t thought of it in the sense of neither comparing the penalty of over paying on the over payments or vs what I could earn in interest on the money compared to what I’d pay in interest on the mortgage in the same time period, but I will need to sit down and work it all out.

Ive never had to make decisions about such large amounts of money before so this is all very useful!

I think your plans seem a good balance between now/future but agree makes sense to do the maths on the mortgage.

If your mortgage rate is 4.1 fixed for 3 years then you’ll be close to savings rates after tax.

some savings rates are just over 6%

so with £100k over 3 years, until the end of your fixed rate you would have £119668,05 so £19668,05 in interest

£6167, 78 in interest each year. You pay tax on the interest over £1000 at 20% but you could split it if there are 2 of you.

you have deposable income you could use that to pay 10% overpayments, or upto 10% overpayments until the need to remortgage. Your able to pay £16k and could use the interest gained £6k and then however much you want to overpay up to £10k or £833 a month

mid be slowly each year placing £20k each into an ISA to gain tax free interest and then in 3 years time deciding what to do.

hiw much of your disposable income would you overpay your mortgage?

I would do the 10% front loaded though so you don't pay interest on it that year. So if you have £160k left you pay off £16k now meaning you pay 4.1% on £146k instead of £160 this year.