£100,000 Invest or offset/pay off mortgage

johanna_3

I will soon be £100,000 richer. I am not sure wether to pay off most of my mortgage currently £107,000 , or offset payments (do not really understand how this works), or invest money in high interest account but then I will have to pay tax. Very confused . Can anyone offer best solution. ps also have some debts on cards. Many thanks.

mary

First move, clear the debts

Walletwatch

I will soon be £100,000 richer. I am not sure wether to pay off most of my mortgage currently £107,000 , or offset payments (do not really understand how this works), or invest money in high interest account but then I will have to pay tax. Very confused . Can anyone offer best solution. ps also have some debts on cards. Many thanks.

How much do you owe on your cards altogether? Are you paying any interest at all of your debt, or is some of it interest-free?

If all or part of your credit card debt is interest-free and you consider yourself disciplined enough to continue making minimum payments necessary to hang on to the 0% rate without incurring penalties, you could maximise your interest savings by:

1. Paying off all credit card debt which are currently incurring interest.
2. Assuming you have an offset mortgage already, putting the rest to reduce your interest outflow. This would ensure that a higher proportion of your periodic mortgage payments go towards repaying the principal.
3. If your principal outstanding on your mortgage goes below the net savings, remove the surplus and put them into a savings account.

This of course assumes you already have an offset mortgage. If you are mulling over whether to go for an offset mortgage, more details will be required on your credit card outstandings. (offsets make sense only if the ratio of your savings to the loan amount is greater than a particular percentage)

johanna_3

Thank you for the replies. No I do not have an offset mortgage and credit card debts are £6000. Hope this clarifies my situation.Many thanks

Reaper

Unless you are paying 0% interest on your credit cards start by paying those off.

Next check your mortgage. Some have penalties if you pay them off a few years after taking them out or restict the amount you can pay off to 10% per year. Check with the lender if you are not sure.

If there is no downside I'd pay off a large part of the mortgage or switch it to an offset. The advantage of an offset is that you can get the money back if ever you need it. Alternatively just pay off some of your existing mortgage but keep some back in a savings account in case of a rainy day as once you have paid it into the mortgage you can't get it back.

Rafter

Agree with Reaper

Unless you are confident about beating the interest rate on your mortgage, you may as well reduce your interest bill.

You just need to be disciplined about what you do with the interest and repayments you are saving?

You might want to use some to improve your current standard of living, but it would be well worth thinking about regular savings into ISAs and upping your pension contribution so you get some long term benefit from this windfall.

Good luck.

R.

johanna_3

: Thank you all for your replys. I will take your advice and pay off my debts, offfset some on mortgage and save /spend the rest. Great!

johanna_3

Me again. Would I be better off reducing my mortgage to say 60k and then openeing a Virgin one account and also put in 30k savings. Thanks

Walletwatch

Me again. Would I be better off reducing my mortgage to say 60k and then openeing a Virgin one account and also put in 30k savings. Thanks

Hi

To answer that question and to evaluate that against the option of switching to an offset mortgage, a couple of pieces of info will be required:

(a) Are there any penalties to prepaying part of your mortgage? If so, what are they?

(b) Does your mortgage provider also offer an offset product?

(c) If yes, what is the cost of switching to this with the same provider? If no, what is the cost of switching to an offset with another Bank/Bldg Socy?

What would make the most sense in your case is an offset, given that you can reduce your interest outflows to practically zero, once you get the money you are expecting!!! Remember, having the money in a savings account and paying tax on the interest (I am assuming you are a taxpayer) is always going to benefit you less (at least monetarily) than reducing your interest outflows in an offset.

lipidicman

I assume you have remembered that the offset morgages are usually at a higher rate. This will be OK if you offset it all, however if you leave a balance, like offsetting 60k as you suggest you may be better off simply paying off 60k of your current mortgage.

If it was me I would use all 100k to pay off the mortgage and then use the old monthly payments to pay into savings and investments and for a little extra spending if you need it. However as everyone else has suggested I would get all the info and do all the sums first.

Congratulations on your windfall, make the most of it

johanna_3

Thanks for the advice but I am really struggling to pay my mortgage at present experiecing severe finanacial difficulty (also can't be trusted to save if I had no mortgage)so need to reduce monthly payments. Has anyone used a Virgin one are thay any good? Is this the best offset mortgage , I'm getting confused now. Help.