How best to use 150k inheritance with mortgage and poor pension provision

[macchupicchu]

We have been left 150k by a dear elderly Aunt.

Situation is : Both 50, mortgage of 165k on house worth £575k, and about to remortgage. Household income £80k and unlikely to increase. Poor pension provision and other savings. Loan of 9k. House needs 20k urgent work, 10k other work (not urgent). Garden room used as a business needs replacing as rotting away.

My thoughts are:

Pay off 9k loan
Pay 65k off mortgage
Spend 20k on urgent work
Spend 20k on garden room
25k into emergency fund
10k holiday / fun

With the 500 pcm freed up from lower mortgage payments and no loan repayments, add to pensions, savings, overpay mortgage, save towards non urgent work on house or any combo of above.

Further thoughts are:

-We could do with an additional car

-Would money be better spent on pensions rather than overpaying mortgage (there is something very appealing about a mortgage of less than 100k at our age though)

-Should we just cut our losses and downsize and clear mortgage that way (was our plan to do that age 60)

I think that is everything, am tying myself in knots trying to make the best use of this money.

Any advice please? Thank you!

God I wouldn't put much into your pensions...you can always downsize when you retire. I think your plan sounds fine.

Another who thinks your plan sounds fine. Don’t bother with the 20k on garden room though, demolish what’s there, tidy up the area in the garden where it stood. Get any obvious repairs to house done before putting on market. Doesn’t matter if you don’t sell so quick, if you’ve already paid down some mortgage, what you’ll be porting (if any) will be reduced in the long term. Buy a low or no maintenance property and really embrace any good health and happiness brought from relief the money has allowed you. Definitely have some fun money allocated, life is far too short to not enjoy any bonus that comes your way and enjoy spending it on fun times as a thank you to your aunt☺️ Enjoy, OP

I think your plan sounds fine in that case. The advantage of paying down the mortgage and having savings rather than tying a large lump sum up in pensions right away is that if anything unforeseen happened (redundancy, ill health, burnout, career change, moving to part time work etc) you have lower outgoings which protects you financially. Of course retirement planning is important too and so making extra pension payments out of income make a lot of sense.

if you put £5000 into a stocks and shares ISA right now and added the £300 loan payment every month for next 10 years you would then have 61,000 made up of 5k initially 36K additional contributions and 20K interest / growth if you did that until 67 instead ie 17 years it would be 133K
if you could put in 500 a month after lowering monthly mortgage payments as well it would be 96K after 10 years and 211k after 17 years

Personally I would downsize if you can’t afford the upkeep on the house and the mortgage. Thats a lot of money to pay off before retirement, with little retirement provisions. I absolutely wouldn’t be using 10k for fun in your situation personally, even if you took £600 you could do a little uk weekend away. I don’t think you need 10k but obviously that’s up to you

If moving is off the cards, I would personally pay
20k urgent work.
9k debt
100k on mortgage
20k into savings/investments
1k to something fun or ‘luxury’
and then with the drastically lower mortgage payments I would put as much money as possible into my pension each month.
though if you’re remortgaging you’ll want to look at the rates because it might be for example 107k would take you onto a better rate or something

if you can move and get a house for say £350 (or less? What is realistic where you are?)
you’d be mortgage free and not have all those repairs to pay for. I’d shove a load of money into investments and savings and pension pot. I’d put a big chunk of money into my pension each month since I’d have no mortgage to pay and then I would treat myself with a bit of the money.

if you are mortgage free you can always save up much easier for things like cars and holidays and you have an asset if you’re ever stuck, so that would be my 1st choice personally.

Sorry for your loss.

First things first; pay off the loan, that's a no-brainer.

Next, I think you need to think more about whether you will stay or move house. That's obviously a big decision and will affect the finances massively. Do you have children and if so how old are they? How many bedrooms do you have now and how many would you want/need if downsizing? You say you use the garden room for a business - if moving house would you need to accommodate the business somewhere? Doing work to your house is expensive but so is moving (stamp duty, conveyancing fees, and more). Think carefully about the costs v benefits of each option, to stay or move.

If moving, consider a 'future-proof' property that you could continue to live in with no/few adaptations if developing health or mobility issues.

If staying, get the urgent/important work done. As for the garden room, how much longer do you intend to use it for the business before retiring? What kind of return will you get on the £20k investment if you replace it?

Once these decisions are made, you can decide how much of the remainder to invest in pensions v reducing your mortgage. For this, it's probably worth talking to a financial adviser - you'll need to do so anyway if you remortgage.

In your position I'd pay off the loan, spend £5k on a lovely holiday, keep £10k as emergency savings, spend the necessary amount on moving house or renovating, and then divide the rest between pension and mortgage, with a view to putting a large sum into pensions asap but also paying off the mortgage as quickly as possible. Of course mortgage affordability will also depend on whether you have children to support through university etc.

There are lots of helpful guides on the moneysavingexpert website if you want to have a browse. Definitely get informed and don't rush the big decisions.

As echoed above:

Pay off the loan
Check what you can overpay on your current mortgage and make that payment now, that will make a massive difference to your mortgage immediately. .
If you are with Natwest, you can overpay 20% of loan value per year, you can check how much you can overpay online.
Then check if you can make another overpayment before you agree new mortgage deal.
Work out essentials repairs on the house, then get those done
Then reassess

Also, what would you have done / focused on without the inheritance.

@Geepee71 I think without it we would have had to downsize to clear mortgage for peace of mind. Just getting too stressed about ageing, potential health concerns, employment, pensions and mortgage. Plan is to keep business until age 60 at least, so next house would need, or have needed, to have space in garden to accommodate.

From what you say about the house I would certainly look at trading down in particular to a new or newish property that wont need major repairs.

I would suggest doing this before any thing else as you can use the money for deposits etc.

Some builders will 'trade in' your old house for a new one - but if you do I would strongly recommend having a surveyor inspect the house as it is built.

Fair enough, we've just made an overpayment on our mortgage and seeing the term reduce from 15 years to 11 in one go is amazing.
We are going to overpay again in July and then pay of the remainder by end Sept 2026.
The relief that we are going to be mortgage free is something else.
We will then focus on future planning, we're in our 50's, so are thinking pension or investments with the money we currently pay on the mortgage

Sorry posted twice

With poor pension provision it would be financially a poor choice imo not to put as much as possible into pensions.
Personally I wouldn't pay down the mortgage at all as its much more financially advantageous ti invest the money you'll get.mote interedt than the mortgage charges.
I'd put at least 80k if not 100k into pension

Id be sorting the house out and future proofing it before i spent 10k on a 2 week! holiday

I was never planning on spending 10k on a 2 week holiday! I'm not that silly. The 10k was potentially for holidays (multiple) / fun spends @SalmonOnFinnCrisp

Please look at the Rebel Finance School. People regret so much not learning financial planning sooner.
Similar to others, I’d go heavy on the pensions, a small amount on mortgage and repairs if necessary. None left for fun at this stage.

But imagine if you invest that overpayment now. You’d be better off in the long term!

What about:

1. Pay off loan
2. Urgent repairs
3. An inexpensive DIY type cabin in the garden if you can manage it. E.g. Duster house looks pretty good value at the moment if and only if this is essential to facilitate your business bringing money in/more money in
4. Good chunk off the mortgage. A PP may well be right that you might make more long term by investing but I think in your financially situation I would rather have the security of paying it down.
5. Some cash savings as an emergency fund - but not loads, you can build that up with money freed up by paying down the mortgage - but you do have to be diligent with that. If you don't think you will be, consider doing something other than paying the mortgage down instead.
6. Pensions with anything left.

@hellisemptyandallthedevilsarehere it's not my call, money belong to partner, and he's adamant he wants to pay off mortgage ASAP. I paid the house deposit, so it evens us up.
Appreciate investing now would be financially better option, but it's not going to happen

@hellisemptyandallthedevilsarehere it's not my call, money belong to partner, and he's adamant he wants to pay off mortgage ASAP. I paid the house deposit, so it evens us up.
Appreciate investing now would be financially better option, but it's not going to happen

Reducing your mortgage means:-

More money to spend on other things each month ( be it pension, holidays or whatever)

Freedom to reduce your hours / retire early if your circumstance / health change.

So

1. Get rid of your loan
2. Find out how much of your mortgage you can pay without penalty
3. Find out if you are close to LTV thresholds when you remortgage

THEN decide how to use your inheritance.

Hi op,

Interest on loans is front-loaded (unlike with credit cards) so there is usually no financial benefit to you paying the loan early, unless the lender gives you a cheaper repayment figure. You could instead invest the £9k to bring you interest, and then pay your loan as usual. Once you know what the early repayment figure is, you’ll be able to calculate if it’s worth paying your loan early.

As for paying into your pension or towards your mortgage - I would pay towards my mortgage (depending on the interest rate) and then massively increase my monthly pension contributions using the money I would have normally used to pay my mortgage instalments. This means that when I finally get my pension, I can get 25% tax free. The bigger the pension pot, the bigger the tax free element. But jt does depend on your mortgage interest and other factors.

In general, don’t get tempted to pay off your mortgage just because it’s stressful to know you’ll have a mortgage in old age. In my case, it is better financially to not overpay my mortgage but to invest my extra money instead. I can carry on like this until i retire, at which point I will use my investments to clear my mortgage.

final piece of advice- don’t use AI for calculations or financial decisions. It makes mistakes, over and over again and doesn’t follow its own logic.