Should I use my redundancy to pay off our mortgage?

anna10

I'm about to be made redundant next month and will receive around £48k. My partner (who is self-employed) and I have no debts other than our mortgage. We have premium bonds amounting to £25k.

We're considering using my redundancy & cash in part of our premium bonds to pay off the £60k outstanding on our repayment mortgage. We're on a 25 year capped rate (capped @ 6.59%) with approx 17 years left. Our current mortgage rate is 3.90%. There are no early repayment penalties other than the normal £150 admin fee. We don't have redundancy protection insurance.

We lost quite a bit of our savings when HBOS shares crashed so we're not interested in investing my redundancy payment in anything that is subject to risk - hence the reason we have our premium bonds.

We're both in our mid 40s so still have approx 15-20 years working life ahead of us. I will be looking for another part-time position, but we can live off my partners income should I be unable to find another job so we're in a pretty good position financially. :j

Our dilema, now that I've accepted the redundancy package is should we use my redundancy & cash in some of the premium bonds to repay our mortgage in full?

Any advice would be greatly appreciated. Cheers.

patman99

As your Mortgage rate is over 3%, then unless you can find a bank account that pays a higher interest rate than this, it would be a good idea to pay-off your mortgage. However, please be aware that if you do this, you need to make sure that you are not going to be in a possition that will leave you unable to meet future debts.

You say your o/h is self-employed, but not what he does. If he is in a vunerable job such as a builder, then by reducing your savings below £16k, if the worst happens then at least you can claim JSA (the rules differ for self-employed).

BTW, have you checked your premium bonds to see if you have won any of Ernie's prize draws?, you might be in for a surprise.

mjm3346

The premium bond calculator on the home page of MSE shows the rate of interest on the premium bond fund is 1.5% and your chance (with 25k) of getting that is less than 40%, your chance of getting the 2.98% available from a cash ISA is less than 2%. Of course you might get lucky and have a big win but on average you will get less than £400/year in winnings while paying almost a £1000/year in interest on 25k worth of the mortgage.

If you pay the whole 60k off you save almost £200/month in mortgage interest, would have the money which is currently being spent on the mortgage available to invest or spend and still have 12k left for a rainy day.

Peelerfart

Isn't their a term called "depravation of capital" that affects benefits due if you use your redundancy to pay off the mortgage ?

snapping_crocodile

Peelerfart wrote: »

Isn't their a term called "depravation of capital" that affects benefits due if you use your redundancy to pay off the mortgage ?

The OP has not mentioned claiming benefits They have said they will try and get a part time job, but if unable to then they are able to live off OH wages

Peelerfart

snapping_crocodile wrote: »

The OP has not mentioned claiming benefits They have said they will try and get a part time job, but if unable to then they are able to live off OH wages

Indeed Mr Croc, but surely it doesn't make any sense to close any doors.
Who knows, it may become neccessary in the future.

JasX

Peelerfart wrote: »

Isn't their a term called "depravation of capital" that affects benefits due if you use your redundancy to pay off the mortgage ?

if there were I don't think paying off existing debt that you are being charged a high level of interest on (well relative to base rate ) would count...... its a very resonable and responsible thing to do.

Oldernotwiser

The OP will be able to claim contributions based JSA for 26 weeks after she finishes work and this is unaffected by what capital she does or doesn't have.

Oldernotwiser

JasX wrote: »

if there were I don't think paying off existing debt that you are being charged a high level of interest on (well relative to base rate ) would count...... its a very resonable and responsible thing to do.

It might seem sensible but people have fallen foul of the rules about this when claiming means tested benefits.

JasX

Oldernotwiser wrote: »

It might seem sensible but people have fallen foul of the rules about this when claiming means tested benefits.

well some quick googling indicates its a very grey and murky area around very subjective opinions of 'timing', 'intent' and 'reasonablness'... Age Concen seems to deal with the issue a fair bit where old folks try to get rid of their money to qualify for free care....

One advice leaflet they publish says:

The term deprivation covers a broad range of ways in which the owner of
an asset might transfer it out of his or her possession. The Department
of Health’s Charging for Residential Accommodation Guide (CRAG)
gives the following examples of deprivation:
• a lump sum payment such as a gift or to pay off a debt;

but another published by the same people also says:

You will not be considered to have deprived yourself of capital if you have
paid off debts or used money on ‘reasonable’ spending on goods and
services. If you are refused benefit because of this you should seek advice
and consider appealing against the decision.

...so thats crystal clear then :rolleyes:

Oldernotwiser

JasX wrote: »

well some quick googling indicates its a very grey and murky area around very subjective opinions of 'timing', 'intent' and 'reasonablness'... Age Concen seems to deal with the issue a fair bit where old folks try to get rid of their money to qualify for free care....

One advice leaflet they publish says:
but another published by the same people also says:
...so thats crystal clear then :rolleyes:

So that backs up what I said that the common sense approach isn't necessarily the right one.