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    • archie17
    • By archie17 7th Sep 16, 6:25 PM
    • 21Posts
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    archie17
    ISA's or help children reduce mortgate
    • #1
    • 7th Sep 16, 6:25 PM
    ISA's or help children reduce mortgate 7th Sep 16 at 6:25 PM
    My wife and I are both retired. I am 65 wife is 62.
    We have sufficient funds and pension to live comfortable.
    We will be contributing £3600 each to a pension fund until we are 75.

    We have a lump sum of £60k. This is in high interest accounts (Santander 123)
    We were going to drip feed this into ISA's for both of us over the next two years.

    We plan that our three children will have a decent legacy. They are all house owners with mortgages.
    They are 35, 32 and 30 years old.

    My thinking is to give them £20k each to reduce their mortgages.

    They could then use any savings in interest payments into their own ISA's

    Any comments on the wisdom of this?
Page 1
    • bowlhead99
    • By bowlhead99 7th Sep 16, 7:00 PM
    • 5,107 Posts
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    bowlhead99
    • #2
    • 7th Sep 16, 7:00 PM
    • #2
    • 7th Sep 16, 7:00 PM
    Why not just invest it in ISAs for yourselves as planned, then if you need it for a more comfortable lifestyle later (e.g. nice care homes etc), you'll have it, and if not, the kids can have it when you croak? Are your assets at the level where inheritance tax is going to be an issue (e.g. a joint estate of a million pounds including house)?

    You say the kids could pay off some mortgage and then use the saved interest to invest in their own ISAs. But presumably they could alternatively invest the money in ISAs and use the returns to pay their mortgage interest (or capital). Or they could add the £20k to their cash savings to give themselves a better emergency/rainy day fund.

    I'd assume your children all have somewhat different personal financial circumstances and so what would be "wise" for them to do with a £20k windfall would differ for each of them; it would likely be better for any gift to be unconditional, allowing them the freedom, as adults, to do the right thing for their situation.

    As we don't know what that would be, it's difficult to speculate whether they might get greater utility from the money than you would.
    • archie17
    • By archie17 7th Sep 16, 8:10 PM
    • 21 Posts
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    archie17
    • #3
    • 7th Sep 16, 8:10 PM
    • #3
    • 7th Sep 16, 8:10 PM
    We had a family meeting and went through our financial state.
    They all work for NHS and have pension provision.
    They all would like to make voluntary contributions to this; but think it would be best to reduce mortgages first.
    So we see this as a way of giving them an early inheritance and also encouraging them to improve their pension provisions.
    Point taken about unconditional gifts.
    • AnotherJoe
    • By AnotherJoe 7th Sep 16, 10:12 PM
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    AnotherJoe
    • #4
    • 7th Sep 16, 10:12 PM
    • #4
    • 7th Sep 16, 10:12 PM
    Just to point out, "ISA" doesn't really mean anything.

    Its just a tax "wrapper". Its what the ISA invests in that matters.
    That might be cash, BP shares, a general global fund or Venezuelan oil futures.

    If their mortgages are at the 2 to 3% level (or higher?) then paying off a chunk from the mortgage is a zero risk guaranteed return at that level.
    • waveneygnome
    • By waveneygnome 7th Sep 16, 10:38 PM
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    waveneygnome
    • #5
    • 7th Sep 16, 10:38 PM
    • #5
    • 7th Sep 16, 10:38 PM
    Another thought....if your children use the 20k to pay lumps off their mortgages, tell them to keep the monthly mortgage repayments at the old level (i.e. before the 20k overpayment was made).

    Presumably they can afford/are used to the existing monthly payments - by doing this they will be overpaying each month as well.
    • jimjames
    • By jimjames 7th Sep 16, 11:19 PM
    • 10,841 Posts
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    jimjames
    • #6
    • 7th Sep 16, 11:19 PM
    • #6
    • 7th Sep 16, 11:19 PM
    Another thought....if your children use the 20k to pay lumps off their mortgages, tell them to keep the monthly mortgage repayments at the old level (i.e. before the 20k overpayment was made).

    Presumably they can afford/are used to the existing monthly payments - by doing this they will be overpaying each month as well.
    Originally posted by waveneygnome
    Problem you'd have is that paying off money that earns 2-3% for mortgage rather than investing in pension where you could get 5%+ means over a period of time you'll rapidly become worse off than by investing money into the pension. Waiting until the mortgage is paid before starting pension means you miss out on compounding. Yes you reduce compounding on the mortgage but miss out on a larger potential growth pot.
    Remember the saying: if it looks too good to be true it almost certainly is.
    • archie17
    • By archie17 8th Sep 16, 8:14 AM
    • 21 Posts
    • 12 Thanks
    archie17
    • #7
    • 8th Sep 16, 8:14 AM
    • #7
    • 8th Sep 16, 8:14 AM
    We were going to put the money into a Stocks and Shares ISA, and we know there is a risk attached.
    Plus their is fees to do this
    We could conceivably not touch this for 10 years plus. More than likely this would revert to the children.

    We see that putting the money towards their mortgage is an investment in property (for them). There will be fees for this but they also maybe able to get a better rate by remortgaging.

    How they dealt with the "spare" money that they will have due to reduced monthly payments is up to them.

    Thanks for all your replies it shows a degree of knowledge and wisdom.
    • xylophone
    • By xylophone 8th Sep 16, 10:32 AM
    • 19,176 Posts
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    xylophone
    • #8
    • 8th Sep 16, 10:32 AM
    • #8
    • 8th Sep 16, 10:32 AM
    It would seem that you are young enough and financially comfortable enough for any such gifts not to raise the prospect of "deprivation of assets".

    You can afford to make this gift and it would seem that it would give you pleasure and satisfaction to see your children enjoy your generosity while you are both still in the land of the living.

    You both have the probability of surviving seven years after making the gifts and so of PET for IHT purposes.

    Your other option could be for each of you to give each of your children £1000 every year.

    Or each of you might choose to make regular gifts from income, say enough to cover each child's pension contribution or mortgage payment etc.

    For my own part, I take the view that my circumstances permit me to be in a position to make modest gifts to family, and it gives me satisfaction to do so while I am still here to see the young people enjoy them.
    • archie17
    • By archie17 11th Oct 16, 2:47 PM
    • 21 Posts
    • 12 Thanks
    archie17
    • #9
    • 11th Oct 16, 2:47 PM
    Update
    • #9
    • 11th Oct 16, 2:47 PM
    Well we have started the process with repayment of mortgages, did not think it was going to be this hard to give some money away.

    Youngest daughter has just paid off £16,000 and will increase her monthly payments. At the same time we are investigating a better deal, with the same provider If all goes to plan her mortgage interest rate will go from 4.49% to a 2 year fixed at 1.87%. This will have no fees attached to it.
    The term will drop from 24 years to 9 years 3 months.
    One very happy child.

    Middle daughter is on a fixed term (3 years left) so we will make two payments over two years. This is due to a max 10% over payment penalty. Her term has reduced from 32 years to 25 years. Hopefully next year we can do another payment.
    Two very happy children

    Eldest son has still to find time to sort out his details. He has just changed his job and is in a bit busy.
    But we think he will end up with a similar package to youngest daughter.
    Three very happy children.

    From the reaction so far THERE ARE ALSO TWO VERY HAPPY PARENTS.
    Putting the money in a boring Stocks and Shares ISA would not have given the pleasure that this has given to our family. It has also opened our children's eyes to the potential savings that can be made by using some financial knowledge. Pensions are the next port of call.
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