Do I pay off my mortgage

RazorReddo

Hi,
I have had a "windfall" of £40k.
I am pondering what to do with it. I dont really have any debt except my mortgage of £78k. Which has 15 years term left and variable rate. At the moment its 2.4%.
I am tempted just to throw this £40k off the morgage but........I was thinking of "making it work" for me and then pay it off the morgage at a later date.
I am not a risk taker and dont want to go for any high risk stock market accounts etc.
The Cheshire do a postal saver account at 2.9% for the first year.
Would this be a good idea, or should I just pay off the mortgage?
Please help.
Thanks
Ian

TEDDYRUKSPIN

Simple answer is get some financial advice.

If you can find any non-risk savings account which will give you more than 2.4% in savings rate, this can help. But, remember, you stated variable rate and this means your rate will one day go up.

Do you have rainy days fund, just in case - for emergencies?

Just to say... nice --- £40k. Just don't go mad on it.

Niv

For some of it you could open 3 x lloyds Vantage accounts and get 4% interest. That will soak up ~21K and is instant access as technically it is a current account. All you have to ensure is that you transfer 1k between these accounts every month which can be set up so you need to nothing on a month to month basis.

Peelerfart

Have you checked are you allowed to pay it off your mortage without incurring ERC's ?

sleepless_saver

RazorReddo wrote: »

Hi,

The Cheshire do a postal saver account at 2.9% for the first year.
Would this be a good idea, or should I just pay off the mortgage?

Is this the account? It seems to be only 2.6% and if you are a basic rate tax payer that translates into 2.01% after tax, which is worse than your mortgage rate. Even if it was 2.9% that would still be only 2.32% after tax.

You won't be able to make it "work" for you by putting it in a savings account as it won't even keep pace with inflation. Had you thought about paying £20k towards the mortgage and keeping £20k in a savings account for fun/emergencies or putting it towards your pension?

jamesd

With £40,000 and a 2.45 mortgage rate you can do better than paying off the mortgage even without taking investment risk. Are you a tax payer? Got a spouse who isn't? That'll help to set what rates you need to be better off.

Start by having a look at the regular saver, bank accounts and savings accounts articles. Those get you anything from 8% regular saver through 5% to 4% for various deposit rates, all of which should make you better off than paying off the mortgage, without any risk.

Now, you wrote that you don't want to use high risk stock market accounts etc. and aren't a risk taker, but it's worth a mention that what people do with those is form a balanced mixture with a capital value variation that depends on their tolerance to risk. So if you want low risk what you might do is put three quarters of the money into completely safe savings and one quarter into investments. Have a look at this post that gives a graph for some investments and how much they have been paying out and perhaps consider a four way split using your S&S ISA allowance. You can see from the graph that the worst that would have done during the market upsets would be only about 5% down temporarily (assuming 1/4 invested, 3/4 in savings). What you'd do is put it away and check that they still look reasonable by asking here once a year, leaving it until it's big enough to pay off whatever's left of the mortgage balance something between five and fifteen years from now.