What to do with inheritance?

DaddyPugh

Can the Great British public please help me with this...

I recently fell into the lucky position of inheriting £60,000. I'm in Year 2 of a three-year fixed rate mortgage.

This means I will incur a 3% penalty (£2,400 to be precise) if I use the £60,000 to overpay my mortgage immediately.

Although I'd like to ride it out until my fixed term ends in October next year (2011) to avoid a penalty, I'm seriously thinking of incurring the penalty now as my wife is seven months pregnant and we could do with making savings on our monthly outgoings.

We currently pay £700-plus a month in repayments, which is a lot for us, and will put us under a fair amount of pressure when we come to rely on my salary alone when the baby arrives. (I clear £1,500 a month)

£2,400 is an ugly penalty to swallow but it would see our monthly repayments drop from £700-plus to around £330 immediately.

I've considered incurring the penalty and then remortgaging with another lender at a better rate than what we've got (5.49%) but I don't want the hassle of racking up more fees and, in any case, we will hopefully revert to an even lower standard variable rate when our fixed rate term ends anyway.

The question is: Do I sit tight with all this cash in the bank accruing b**ugger all interest until our fixed term ends at the end of next year or use it now to free our finances up a bit, albeit with a hefty penalty?

I've already overpaid by the maximum I'm allowed this year, which is 5K

Any advice gratefully received.

beecher2

Overpay as much as you can first of all. Could you then reduce your term significantly to allow you to pay a much larger repayment until October 2011? You could then change the term back when you come to remortgage.

pandora205

When I inherited some money I was in a fixed rate sum. I was allowed to pay off 10% per year and also to overpay, so I doubled my payments. Three years isn't long and will soon go.

I did various things with mine while I was waiting (premium bonds, high interest account, ISAs... and have since discovered National Savings Indexed linked savings certificates, which are a good deal).

Dan_1976

Work out what you will save in interest by paying the pen. If it saves you more then go for it, if you lose then dont. As Pandora says, it will go fast.