Inheritance - would be better off paying off the mortgage or putting it into saving?

[youknownothingofthecrunch]

We currently have a £90,000 mortgage at 4.9% fixed until 2010. Some time in the next 6 months we will be getting around £100,000.

Financially, will we be better off saving the money and raking in the interest or paying off our mortgage?

It would just be so nice to be mortgage free, especially with dc number 3 on the way. But would this be stupid?

TIA

Presumably you will have to buy your way out of the fixed rate. Can you put the money somewhere until 2010 and then pay the mortgage off?

I would pay off the mortgage in 2010 and then change the mortgage payments into a regular deposit into a savings account.

Definitely look at penalties if you pay off early. They can be astronomical. If you do have to pay penalties, invest the money in a high-interest account until 2010 but split it between two accounts so you don't have more than £50,000 in any one bank.

Soupy is right IMO

Yes we could. I believe the penalty is down to about £2000 to buy our way out.

I think part of this is cowardice, I don't want to have any money, I want it all to be safely "gone", with fewer bills to pay

On the whole it is better to pay off debts than it is to save the money. The interest you pay on the debts is higher than anything you are likely to earn on the savings so it makes sense.

That said it depends. I would maybe think about paying off a portion of the mortgage and then saving a little bit for a rainy day, especially if your income is at risk due to redundancies. You will have a little bit left over from even after paying off the mortgage so maybe this is enough?

Also consider that if you pay off your mortgage before the end of your fix you may be have to pay a penalty. Depending on how much it would be, it might be worth sitting on the money until the end of your fix. Make sure you don't leave it all in one account in these uncertain times though!

Yup, you're all incredibly sensible. It is what we should do. I think once I've sat down and worked out the actual finances of it I'd be stupid to do anything before 2010.

Thank you all.

you could check whether what you will save in interest payments by paying off mortgage ASAP would be outweighed by the interest gained by stashing the money until 2010

bear in mind savings interests rates have been slashed too recently and are a bit shite

actually if it was me I'd be tempted to pay it off ASAP and wave goodbye to the mortgage! what a feeling that'd be...

That's my problem Cat, I'm getting all swept up in the moment

IT's not as though our mortgage is big, but at the moment we are unable to save anything - and that would be nice.

and of course if you pay off the mortgage now you could start saving some of the money you'd otherwise be giving to th bank every month... if you can save a regular amount every month there are still some reasonable fixed rate interest accounts you can get where you leave the money untouched for eg a year...

You may also be able to pay something off without a penalty. I think ours lets us pay off about 10% before penalties are incurred.

It's a good idea to pay off the mortgage, but it also depends on how much you have in savings right now. If you pay off the mortgage and then get made redundant then you won't have a mortgage, but you will have lots of other bills and the building society won't give you the money back! It's a great idea to have money saved for a rainy day (not the whole £100,000 though, unless you have extraordinarily large regular bills! - most experts recommend 3 month's worth of outgoings).

Soupy's idea is great by the way. It's easy to spend all your disposible income without even thinking about it.

agree with the soup

Remember to factor in the tax you will have to pay on savings in your calculations.

Thanks everyone - and thank you janin for reminding me about tax, had not factored that into my calculations

It's all much of a muchness actually. I've looked at all the scenarios (paying back the 10% allowed/paying off all of it/paying off all of it next year when fees are reduced further etc)

But taking into account tax on savings, that has just nudged paying it off now into the lead (by all of £200 over 2 years ). Which would still leave 10,000 in savings for emergencies.

Of course I've made a lot of assumptions on interest rates etc. but the maths seems to (surprisingly) support paying it off. Will have to double check everything.

I do definitely intend to take Soupy's advice either way!

Thank you so much

How much penalty would you have to pay if you payed of your mortgage?

I was tied into a mortgage for 5 years on a fixed rate, when i wanted to change to another lender (so effectivley pay of the mortgage) i went to the building society to ask about paying off - they had me down as being tied in for 4 and a half years??? never seen a tie in for a half year

So I moved my mortgage 6 months early without penalties. there loss not mine...

Just check it out with your lener now to make sure - just incase

Check out high rate savings with good long term rates - so you dont have to keep moving your savings around until you pay the mortgage off.

Can you offset the mortgage? It is not a great time to tie up cash - you never know when you'd need to got your hands on it.

Will double check 44, thanks, that would be a nice surprise

The early repayment fees are 2% for this year and 1% from next August - which is even less than I had thought, so that is good news.