Advice on Inheritance

fergee

Hi,

I have recently inherited £120,000 and need some advice on what to do with it. I have a mortgage with The Skipton which is in 2 parts, one for £63k at base rate +1.25% with a floor at 3% (so am paying 3% on this), the second part is for £104k which is currently at 4.5% and moves with the base rate.

What i think i should do is pay off the second part of my mortgage and pay the £580 (monthly payment) into some sort of savings account, and invest the remainder. My wife has a mini cash isa, and i don't. so i'm really looking for some advice on what to do with the remainder of the money £16k and my regular £580 per month. Also if paying off the mortgage is not the best place for the money please let me know.

Thanks in advance.

alastair_h

fergee wrote: »

Hi,

I have recently inherited £120,000 and need some advice on what to do with it. I have a mortgage with The Skipton which is in 2 parts, one for £63k at base rate +1.25% with a floor at 3% (so am paying 3% on this), the second part is for £104k which is currently at 4.5% and moves with the base rate.

What i think i should do is pay off the second part of my mortgage and pay the £580 (monthly payment) into some sort of savings account, and invest the remainder. My wife has a mini cash isa, and i don't. so i'm really looking for some advice on what to do with the remainder of the money £16k and my regular £580 per month. Also if paying off the mortgage is not the best place for the money please let me know.

Thanks in advance.

Personally I'd think about storing most of this money and over paying on your mortgage payments rather than knocking off a lump sum on your mortgage - reason most providers will normally hit you with an administration fee (last one {and only one] I had was around £50/60), this tends to negate the interest savings you are making on early repayment of the mortgage. This is easier to do with a Standing Order which you have rather control of rather than Direct Debit. You could "drip feed" from a high interest account into mortgage account. I cleared my mortgage 11 1/2 years early saving approx £11k in interest.

You may want to consider using both your Cash ISA allowance for 2009/10 - £3,600 (same for wife) and 2010/11 from 6th Aprill 2010 (£5,100 each - assuming you are both under 50, if older different rules may apply). see below.

http://forums.moneysavingexpert.com/showthread.html?t=401374 - link to best buys post.

"From 6 October 2009, the ISA subscription limit will increase to £10,200 for anyone eligible to invest in an ISA who was born on or before 5 April 1960 (that is, who will be aged 50 or over during the current tax year).

Up to £5,100 of the new ISA allowance can be saved in a cash ISA with one provider. The remainder of the £10,200 can be invested in a stocks and shares ISA with either the same or another provider. Alternatively, the full £10,200 can be invested in a stocks and shares ISA with one provider.

These higher ISA limits will apply to all eligible ISA investors with effect from 6 April 2010".

If you are looking to invest £250 to £500 per month some of the regular savers may give you a fair % interest rate around 4.5% for 1 year - note this equates to half % rate as full amount is only in there for last month, so you may be able to get better with an instant access account.
http://www.moneysavingexpert.com/savings/best-regular-savings-accounts
http://moneyfacts.co.uk/compare/savings/accounts/regular-saver/

Primrose

Your decision will partly be guided by your attitude to debt, how secure your job is vis a vis paying your mortgage, whether you have an adequate pension fund, etc. I personally hate debt of any kind, so in your shoes, I would pay off the second part of the mortgage and then perhaps use up the remainder by using up your ISA allowances over a couple of tax years, or clear virtually all the mortgage, but save yourself a few thousand pounds to enjoy on spending some of it..

fergee

Thank you both for your replies. The second part of my mortgage would only attract a £125 early redemption fee as it is a SVR mortgage. I'm not to bothered about being in debt for my mortgage and i'm just looking for the most profitable way of investing/spending it.

My wife and I are both well under 50 with 2 young children and we will be taking full advantage of the ISA allowance. I'm a higher rate tax payer so would i also be right in believing that my regular savings would be best invetsed in her name as she is a lower rate tax payer?

alastair_h

Yes you would pay less tax if the account was in her name.

DiggerUK

fergee,
I will puzzle until my dying day, why people don't want to secure their property, and get rid of the biggest debt most of us take on.
You will have to pay your mortgage off sooner or later. Why do you want to give money away in interest payments? Interest payments that possibly took a step closer to going up, with yesterdays figures on price inflation.

Kill the mortgage now. You may be out of work next month.

No mortgage means more disposable, that's when you should decide how to put by for the future.

Best of fortune.

cos69

fergee wrote: »

the second part is for £104k which is currently at 4.5% and moves with the base rate.

That 4.5% interest your paying on the mortgage is greater than the interest you will receive on the money after basic rate tax. So I would pay off the mortgage.

Half the monthly repayments you were making could be put into some form of monthly equity based investment (maybe an index tracker fund) since you also seem to have some other savings.

moggylover

I'm voting for getting shot of as much of the mortgage as possible as well for the reasons already stated.

What to do with the 16K left over? Well, I would probably be paying that off the balance of the mortgage as well, but otherwise if you feel you would like a "bit" put aside for those things that just happen and that this will make that comfort zone better then go for that.

Paid my mortgage off early last year and it was a truly superb feeling:o:cool:

fergee

Thanks for all your help guys. Since posting we have received a letter from the Skipton saying the part of our mortgage at 4.5% is going up to 5.95% from the 1st of March so I will definately be paying off this element of my debt. The other element of my mortgage is a hangover from when it was with the Scarborough building society and I will have it at base rate +1.25% for the remainder of the term so i think I will keep this debt (at least until the base rate has increased by 2% or so)

Thanks again for your help everyone, i'm now looking to maximise ISA saving with the rest.