Mortgage v Savings

whereami

Hi everyone.

I have a relatively small mortgage (£45000) which has 13 years left to run. I have just come into some money (around £30K) and would like some advice on what would be best to do with it.

I'm thinking about paying off some of the mortgage - say, around 20K, and investing the rest into ISAs and savings A/C.

Or would I be better off putting all the money into a savings account given the small size of the mortgage?

I've looked at different mortgages and savings opportunities, but I'm rapidly becoming more and more confused. Can anyone give me some advice?

penrhyn

Any saving account will give you less interest than that being charged by the mortgage.
You don't say what kind of mortgage you have?
If you don't want the money for anything pay off the mortgage and use the monthly payment money to open a regular savings account.
You could consider changing to an offset mortgage and pay all your windfall into the account, then you could borrow some back as and when you need to.

O and welcome to the site, you'll get loads of advice here.

tomstickland

Mathematically it's simple.
Look at the interest rate after tax. If it's less than the mortgage rate then put that money into the mortgage. If it's more than put the money into the ISA etc.

Some examples: £3K into a 5.15% ISA. If your mortgage rate is 5%, then the ISA will gain you 0.15% pa.

£3K in a 5% instant access savings acount. That's 4% after tax, so put the £3K into the mortgage.

£3K in a 5% instanrt access savings account, move £250 per month into a 10% reg saver. Effective interest rate 7.5% before tax, that's 6% after tax, so better than paying off mortgage.

Ian_W

Agree with Tom in strictly MSE terms [which saves you most money] but a few other points to consider:

1. If you have little or no savings other than your windfall, keep some back as "rainy day" money so you have a cushion for unexpected events.
2. Check your mortgage T&Cs re over-payments, some restrict the amount pa, some will let you have the money back if it's needed.
3. Quite a few lenders won't do remortgages of less than £25/30K so if you reduce beyond that amount your options may be limited.
4. If you do pay it off your mortgage keep your repayments the same and reducve the term - it's great to be mortgage free, believe me.
5. As Penryn says, think about an offset mortgage. Rates used to be pants but are now far better so you still have access to all your money if you need it but don't pay interest on the offset amount. Overpay into it and you'll also reduce the term.

Also welcome - your "problem" is a lot happier one than many who post for advice here.