Can you point out the flaws in this plan, please?

[LaTrucha]

I have come up with a plan for the proceeds of the sale of my mum's house (she died in 2008). We don't have the money yet but it should be a sizeable amount. After some money we want to set aside we have around £50 000 for use in investments or mortgage.

Let me explain the background.

I do have some small investments and do understand that long term this is probably the best use for the money. I also understand that in terms of borrowed money, mortgage money is among the cheapest you can get.

However, these are our personal circumstances.

I am a SAHM, and wish to remain that way. I have a two year old and am expecting my second child.

DH earns a salary on which he could raise about £105 000. We think we may be able to persuade a mortgage company to give us £120 000. We currently have a very small house and may want a bigger one in a few years.

We currently have a mortgage of £119 000

DH's job is also not that certain, although we would have several years notice if he was actually to be made redundant. If he was, we would probably relocate to Spain, where there are more jobs in his line.

So, I don't feel we are necessarily in a position to put the money in a long-term investment as we may have need of it soon.

I don't feel that a high interest savings acount would do much for us.

My plan is this (and bear in mind that we are relatively good at sticking to a limited budget): Put £50 000 into the mortgage, still to be paid off over 25-30 years. This would reduce our mortgage (we currently have a bad deal) by about £400 and would save us money even with the early get out fee. We would then save the £400 as a nest egg to set aside possibly having a period of unemployment and relocation expenses.

Are there any obvious flaws here that we have missed, because it looks pretty good to us? We can't really afford to get this wrong!

The point of the plan is to have some savings and to make getting a mrtgage for a bigger house easier - whichever we turn out to need.

LaT - it depends on your current mortgage rate. Even if its not a good one, it may not worth putting your money in to pay it off, as you may struggle to get a good mortgage on your next property because the banks aren't offering such good deals any more. In fact, what you might find is that you need a nice lump sum to put towards the next house, then you sell your current one, and use the lump sum + proceeds towards the new one which helps to limit the mortgage exposure on the next property much more. Obviously it depends on just how bad the current mortgage is compared with what you might be able to get for the next house....

We have had a look at deals if we got a new mortgage on this house. It would be worth getting out of our current one as it stinks.

£105 plus £50 000 wouldn't be enough to buy a bigger house round here. If we paid off £50 000, we will have paid off £86 000 of this mortgage and that, plus £105 might get us a bigger house. Does that make sense?

But if OP takes the #50k off her mortgage then it by default turns into equity that she can use as part of lump sum/deposit on hypothetical next property, no? Or is Fillybuster thinking about the possible need for a bridging loan?

Probably worth ignoring me if your mortgage isn't great...I know that when dh and I paid off some of ours recently we realised afterwards that we shouldn't have done as our rate is pretty good and so we'd have been better off keeping the cash towards the next place.

And I guess the issue is partly that the 50k does become equity but doesn't actually earn you anything...although if it is going to save you a substantial amount then it probably is worth doing.

That's our idea, Brokenarm. Our mortgage sucks. Plus, if we pay it off, we could save the £400 difference. Thanks for replying.

But you stop paying interest in the 50k if it goes off the mortgage, unless rate is absurdly low, it's usually worth while to do that. The knock-on benefits in paying entire mortgage off that much sooner can be huge.

I do feel it would be more beneficial at our stage of life to pay off the mortgage than invest, even if the investments amke more money over a long period of time.