inheritance money

SapKnight

Hello,

I'm soon to recieve £30,000 inheritance money (thats after all the taxes etc etc).

I've recently bought a house with a mortgage, also part funded by the developer.

House - £170,000
20% deposit from the developer £34,000
5% deposit from us £8,500
Mortgage of £127,500, over 35 @ £630/month

The 20% from the developer is to be paid back from the house sale at 20% of the then value (so could go up or down from now), or we could buy back that 20% of the house before then if we wished to do so.

If I make a massive overpayment on my mortgage I'd get it cleared by year 19 instead of year 35!

So what I'm asking is; would it make more financial sense to buy back the 20% from the developer, OR to pay a whack off my mortgage. Either would result in us owning more of the house outright and better for when we get our next place.

OR

Should I invest somewhere else

OR

Buy an additional property?

Any tips/advice much appreciated!

I've also put this in another section, as I felt it covered both topics.

CloudCuckooLand

There is no "right" answer to this. Depends on your risk profile.

Personally, I'd want a shorter term for the mortgage. You are wasting an awful lot of interest by having a 35 year term. And you need to keep some cash/overpay in a way that brings your LTV down, for when you remortgage.

Buying the 20% in one chunk, to avoid multiple valuation/legal costs would be a good move, too though. Which, you don't seem to have enough to do yet. If prices fall maybe that could work in 6 months or so. Though if its interest fee until re-sale, that not the most efficient in £ terms - but it does free you up to rent it out, usually, if you need to...

Investing elsewhere would involve BTL rates, usually higher than residential. And larger fees, too. In addition to the inherent risks of being an investment landlord, you would be tying up the money you will need for re-mortgage. That doesn't seem sensible. You will need it.

19 years is new term if £30k is paid off the mortgage? How about use an amount that brings the term to 25 years. Keep the balance for an emergency/fees funds for when you move/remortgage.

SapKnight

Hi,

Thanks for your help

some good tips. I think paying off the mortgage rather than the % owned by the developers is probably the best way to go. Ideally I'd like to pay off alot of the mortgage then either when we sell in 2 years or remortgage in 2 years we'll have a bigger deposit for the new place, or better mortgages available.

CloudCuckooLand wrote: »

There is no "right" answer to this. Depends on your risk profile.

Personally, I'd want a shorter term for the mortgage. You are wasting an awful lot of interest by having a 35 year term. And you need to keep some cash/overpay in a way that brings your LTV down, for when you remortgage.

Buying the 20% in one chunk, to avoid multiple valuation/legal costs would be a good move, too though. Which, you don't seem to have enough to do yet. If prices fall maybe that could work in 6 months or so. Though if its interest fee until re-sale, that not the most efficient in £ terms - but it does free you up to rent it out, usually, if you need to...

Investing elsewhere would involve BTL rates, usually higher than residential. And larger fees, too. In addition to the inherent risks of being an investment landlord, you would be tying up the money you will need for re-mortgage. That doesn't seem sensible. You will need it.

19 years is new term if £30k is paid off the mortgage? How about use an amount that brings the term to 25 years. Keep the balance for an emergency/fees funds for when you move/remortgage.

dimbo61

You dont give the interest rate you are paying on your mortgage or if its fixed and what overpayments are allowed!
Is the loan from the developer interest free? If it is then overpay the existing mortgage and keep some back in emergency savings
I am sure if you offer £30K to pay back your 20% they will bite your hand off!

SapKnight

The 20% with the developer is to be paid back once the house sells at 20% of the market value. No interest on this.

£127,500 mortgage is 4.9% over 35 years, its on a fixed term of 2 years at the mo. Over payments are allowed, up the extent of almost paying it off, which this one off payment wouldnt do.

Thanks

dimbo61

Well I guess as you only put down 5% you dont have a lot of savings so keep £5K and pay the rest off the mortgage

Rainmaker_uk

dimbo61 wrote: »

Well I guess as you only put down 5% you dont have a lot of savings so keep £5K and pay the rest off the mortgage

Unless you have other money put aside I would recommend that you pay off 25k and keep 5k in an ISA (either cash or stocks but stocks would be my choice).