Inheritance pay off mortgage or not?

oliel
oliel Posts: 183 Forumite
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in Mortgages & endowments
which is best to do if i inherit £200k

1) pay off my £125000 mortgage and bank £75k

2)invest £200000 into term deposit draw the interest on this at the end of the term and then reinvest again and use the interest earned each time to cover mortgage payments

I am thinking that with option 2 i would eventually pay off mortgage and also still have £200000 in bank? whats your opinion?

Thanks

Comments

  • hcb42
    hcb42 Posts: 5,962 Forumite
    depends on your attitude to debt,the interest rates, and your income to pay the mortgage, personally I would pay it off, and be clear of it, enjoy the relative freedom - but that's my personal opinion....
  • p00hsticks
    p00hsticks Posts: 12,776 Forumite
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    oliel wrote: »
    I am thinking that with option 2 i would eventually pay off mortgage and also still have £200000 in bank?

    Yes, but if you went with option 1 and paid the £125k (plus interest) that you would otherwise be paying on your mortgage into the bank alongside your £75k, then you'd probably also end up with a similar amount in the bank in the same timeframe...

    At it's most basic, if the interest rate you are paying on your mortgage is higher that the net rate you can get on a savings account, it makes sense to pay off the mortgage (and vice versa)

    Also bear in mind that the interest on any money in a savings account is going to be liable to tax - even at todays rates, the interest on £200k is not to be sneezed at, and when taken alongside any existing income of your it might even have the effect of putting you into a higher tax bracket .....
  • opinions4u
    opinions4u Posts: 19,411 Forumite
    Without knowing the rate, how can anybody answer?

    Also, what early repayment charges are there?
  • Gorgeous_George
    Gorgeous_George Posts: 7,964 Forumite
    First Anniversary Combo Breaker
    If you can save and/or invest the money at a post tax rate greater than your mortgage rate then saving or investing is the answer. If not, then paying off the mortgage is the answer. Paying off the mortgage is also the answer if you value the satisfaction of being mortgage free.

    I'd consider what the person leaving the money would like me to do with the inheritance. I'd probably buy property.

    GG
    There are 10 types of people in this world. Those who understand binary and those that don't.
  • Thrugelmir
    Thrugelmir Posts: 89,546 Forumite
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    Personally I would use the inheritance to pay off the mortgage. Progressively invest the remainder into ISA's with a mixture of cash and stocks and shares. With the money saved from having no mortgage repayments to make, save a reasonable amount into a pension scheme every month.
  • originalmiscellany
    originalmiscellany Posts: 1,655 Forumite
    First Post Combo Breaker First Anniversary Mortgage-free Glee!
    Like Thrugelmir, I'd pay off the mortgage, and put the rest into a mix of cash and share isas. On top of that, I'd effectively keep up mortgage repayments but channel them off into alternative savings over say 10 years, so you would save a decent amount for when you're older.

    In fact, I'd do almost everything Thrugelmir has said. He's a bright spark (assuming it's a he)!
    Feb 2012 - onwards MF achieved
    September 2016 - Back into clearing a mortgage - Was due to be paid off in 32 years in March 2047 -
    April 2018 down to 28.00 months vs 30.04 months at normal payment.
    Predicted mortgage clearing 03/2047 - now looking at 02/2045
    Aims: 1) To pay off mortgage within 20 years - 2037
  • getmore4less
    getmore4less Posts: 46,882 Forumite
    Name Dropper First Anniversary First Post I've helped Parliament
    If you have a mortgage on a good rate and might want to move in the future then keeping and porting the loan might be an option to consider.


    Look at mortgage free as part of retirement planning.
  • dimbo61
    dimbo61 Posts: 13,716 Forumite
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    If you do inherit £200K will there be inheritance TAX to pay on the estate?
    What would the person who left you this money want you to do with it ?
    How safe is your job? Are you happy in work or do you dream or working part time? or doing a less stressful job!
    Do you have other savings or do you love hand to mouth each month?
    As others have said we dont know your interest rate on the mortgage or any ERC if you cleared it early.
    ME I would pay off the mortgage and invest the rest in cash ISA,s stocks and shares ISA,s maybe a nice holiday and newish car
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