How best to use inheritance to clear mortgage in 2027?

[FinancialAdvicePlease]

I am a late 40’s female, no kids and could really do with some advice from you money savvy mumsnetters.

I work full time but am a basic rate tax payer. After much saving I bought a house with my partner in 2016, sadly he unexpectedly passed away suddenly in 2021 leaving me with a mortgage that I have struggled to pay on my own.

After a few tough years of of ill health, sadly my elderly parents have now both passed away leaving some inheritance money. This money combined with my own savings comes to £150’000. I am so grateful to have this money but it also feels like it comes with great responsibility.

My mortgage is approximately £150’000 with about 20 years left to pay. I currently pay £820 per month. My current 5 year fixed term at 3.44% ends in November 2027.

I am desperate to pay off my mortgage in November 2027 when I can avoid an early repayment fee. So as not to drip feed, my employment does not feel massively secure and I have to consider my health. I had an organ transplant 15 years ago and sadly this will not go on working forever. So I don’t know how long it will be possible for me to continue working full time. Paying off my mortgage would be a huge sense of relief.

So far I have opened an ISA and deposited £20,000 into it and paid 10% off of my mortgage, that was just over £15’000. I will also open another ISA in April when we start the new financial year so that will be another £20’000 accounted for.

That leaves me with £95’000. Does anyone have any sensible suggestions of what I can do with this remaining money, please? I would like to gain as much interest as possible prior to paying off my mortgage so I am not going down to zero savings.

The only idea I have had so far is to buy £50’000 worth of premium bonds.

Any advice gratefully received.

Are you sure it's worth paying off the entire mortgage if that will leave you with practically no savings? It sounds like it might be worth paying off the great majority of the mortgage but keeping a bit of your inheritance as a savings buffer.

A high interest savings account will pay quite a bit more than premium bonds. I'd have a look on Money Saving Expert at what the highest rate is - that might be the best place to keep the £95k til November.

Hi 👋 I’m so sorry to read of your loss.

Personally I’d take steps to just keep the money safe for the short term and not rush into any major decisions while grieving.

I always tend to follow/recommend tried and tested advice (Dave Ramsey/Rebel Finance School).

Those generally equate to:
pay off all debt, bar mortgage
build emergency fund, generally 3-6 months of your bare bones expenses/outgoings
then look to save/invest

If you have a workplace pension, max your contributions to ensure max from employer.

Max out cash ISA, and again in the new tax year.

Weigh up your mortgage overpayment/payment in full vrs what you could achieve by investing the money instead.

firstly, sorry for your losses.

The least complicated way in my opinion is to put it in a high interest account, fixed for 18months, or 6months then 12 months to stagger the interest payments across 2 tax years. You will have to declare the interest through self assessment or try and get taxed at source if you still remain a basic rate payer, when you add the interest to your income (minus pension contributions)
At 4% you will make an extra £6000

your bigger question is how are you going to manage the excess income after you’ve laid the mortgage so that you can have better finances in the future?

I'd go for premium bonds and stick the rest in a regular savings account ( highest interest I could find), it's only 18 months so don't do anything risky with it.

Sorry to hear you’ve been through so much. I can see why you want to make the right financial decisions. Did your partner have life insurance for the mortgage? Presumably not but worth checking as it is difficult to get a mortgage without life cover. I would keep a bit of a buffer say £20,000 if you can of your inheritance as savings then pay the majority of the mortgage off. Some of the high street banks have one year bonds that are paying a decent rate at the moment.

Apologies I should have added that I will have now until November 2027 to save up a small buffer so I won’t be going to nothing. But will probably only be able to save up a few thousand in that time. But if I leave it in a savings account I will have to pay tax on the interest once it reaches £1’000.

Speak to your mortgage advisor and ask how much the penalty is for paying early. You might find out it’s less than you could earn in interest. They can tell you in a quick phonecall

Sorry to hear about your partner and parents.

Chase are currently offering a boosted savings rate of 4.5%, for a year (the rate will fall after that) so putting it in there would mean you are gaining more in interest than you are paying on your mortgage. So I would not make any more overpayments whilst you are on the current rate.

Premium bonds are ok - on average you’ll get less than you will in Chase, but there is always the chance of a big win. So if that appeals, you could put some on there too.

i do understand the appeal of paying the whole thing off, but worth looking at bigger picture in terms of pensions savings etc too. Bringing it down to a more manageable monthly payment whilst keeping some for an emergency fund and/or investing for the future might be a better option overall.

Unfortunately you've used up your tax free savings limits, so you'll need to pay tax on anything additional.
The other option is that you make an extra payment to the mortgage and accept that you'll pay a penalty.
I think ours is 2% with two years left and 1% within a year... So £450 if you paid off the £45k in October?

You would be better putting the money in the highest interest cash savings you can find. Even if you do pay tax on interest it is still likely to work out better overall than premium bonds. Many, many people have full holdings in PB and never win anything near the average return. With savings in cash at high interest even with tax you will be better off.
As an aside, was there no life cover on the mortgage. It's quite unusual to not have something in place should the worst happen.

Could you sell the house and buy a smaller one bedroom apartment in a good location if you do happen to experience bad health? I would hope that would lessen your debt and make you more comfortable.

Are you a basic rate taxpayer, op? If so, even with the tax you would make more putting your money in a Chase savings account than you pay on the mortgage, and remember you have a £1k allowance as well.

Premium bonds will only pay a mean average 3.3% and the median return will be lower still.

Thank you so much for your thoughts and comments so far. Just to answer a few of the questions asked, sadly my late partner cancelled his life insurance policy during covid when things get tough. He didn’t tell me this and appeared to be in perfect health and would never have predicted he would pass away at 44 years of age.

My plan is to downsize if my health does take a turn for the worse. But I’m really happy in my home for the time being and have fantastic neighbours.

It looks like the general consensus is that I should perhaps put in a high interest savings account and do a tax return rather than premium bonds. It doesn’t really make sense to waste money overpaying further on the mortgage. I’m not too worried about having little savings as I’ll be able to save £1000 when not paying for the mortgage.

That’s should have said save £1’000 a month when not paying the mortgage

Id check with the bank re tax returns. HMRC billed me automatically one year because of interest earned.

Just be mindful that mortgages are the cheapest way to borrow money.

Especially down the line when you don’t have a job.

I would consider keeping a significant savings pot and a small mortgage, maybe less than £16k if you might be on Universal Credit.

Your timeframe is short so avoid investing, just stick with highest interest rate savings account you can.

Oh, you may as well get yourself on a nice long cruise at some point too (health insurance permitting).

If your ERC is less than the % rate you are paying on your mortgage, pay it off now as the amount will be less that the total interest you will pay between now and 11/2027.

Or pay most of it off and keep a small buffer in savings.

Same - when I earned enough on savings that I needed to pay more tax on the interest, HMRC just changed my PAYE tax code and reclaimed the interest automatically. No need for a tax return.

I’d put the max in with Premium Bonds and save the rest. This could be your first and only chance to have the maximum (otherwise known as full holdings). Me and most other people with FH on the PB’s threads on here do OK every month and you could win big. Prizes are tax-free, so for me that’s a huge advantage. Interest rates on savings accounts are pretty dire now anyway.

Also please think ahead to potentially losing your job (without trying to sound negative - I’m being realistic here in this current economic climate). Whilst paying a mortgage there is practically no help from the government. Could you use some of this money to retrain? Or could you get a lodger? I would be making as much money as I could, in addition to savings interest and premium bond prizes, in the context of being single and having a job that feels a bit insecure.

10% overpayment each year, the rest in ISAs account, and high interest accounts. Then pay the rest off at the end of the deal - in the mean time then you can save any other £ so your bank won't be empty in 2027 when you spend it all.

as you have no kids and no-one financially dependent on you there is no need to worry regarding leaving an inheritance to anyone.
Generally people would suggest maxing out pension but as you say you have a life limiting condition and may have to retire early and live on what is left or as you suggested yourself the organ transplant may fail and you might not get to collect your pension.
Being realistic if you have a paid off house you can live on your state penson, though it won't pay for cruises and new cars and you should have a workplace pension too. I would try to make a small nest egg in case due to ill health you have to retire early and live off your workplace pension and savings until you are 68

Paying off your mortgage in 2027, is the best idea, as there is peace of mind in knowing that if you lose your job your house is secure I would reserve a decent emergency fund around £10,000 (as you do not want to have to borrow money for house or car repairs at a much higher rate of interest than your mortgage is) but once mortgage paid off you will have an extra 820 a month if you set aside an extra £120 a month for more fun and a £100 a month towards holidays you will still have £600 a month to save or £7,200 a year which can be a fund for a new to you car, a new boiler etc
every year you can earn £1000 in interest on top of your tax allowance without paying tax
your 95,000 in a 4% savings account will be worth roughly 100,600 gross ( you will be paying tax on interest in two different tax years each year will get £1000 interest wih no tax; so your tax bill will 20% of £3800- 1000 = 2800 ie £560 for tax year 2026-2027
and 20% of 1800- 1000- = 800 ie 80 tax year 2027-2028 total in November 2027 so 100600 - 640 tax = £99960so just the interest will give you almost an extra £5000 plus the interest on your ISA's so again 19 months at 4% for 40000 you will have approx £2500 of tax free interest so overall you will have an extra 7500 by November 2027which is a good start to your new emergency fund

Just because you are a transplant recipient I would ensure you have a good sized cash pot to cover any private medical issues that may arise quickly to avoid complications.

Rather than premium bonds, how about UK government bonds (Gilts)? They're similar to premium bonds, but rather than offering a chance of a win, there's a guaranteed fixed return on the bonds.

Buying gilts with a low dividend income (the coupon), but a higher return at maturity means it's counted as a capital gain - and gilts are free of capital gains tax. It's a popular choice for those who have maxed out their cash ISA but don't want the risk of stock market investments.

https://www.moneysavingexpert.com/savings/uk-gilts-lower-tax-savings/