Paying off the mortgage

spindlegs

I am new to the site, first post so hope I have put this in the correct place.

We are a retired couple struggling like most and still have a mortgage of £130,000 with a property value of £400,000. At present we have a fixed term mortgage for 2 years of 6% and am managing on a meagre pensions by topping up with some small savings, which will have depleted by the end of 2011.

My mother is selling her house and is going to give us our inheritance now it will be approximately £60,000.

The problem is we dont know whether to pay off some of the mortgage or keep the money and keep drawing down. We did pay off some of our mortgage with the pension lump sum, £15,000 but it only reduced the payments by £35 per month so seem trivial.

Anyone got any suggestions, any advice welcome.

originalmiscellany

Hello Spindlegs.
First time poster - welcome.
It's a very odd position to be in, to have a mortgage of 130k even though you have retired... How were you planning to clear your mortgage say 10 years ago when you were both working?
You can't wait on your mother "popping her clogs" to only half clear your mortgage - it could be tomorrow, it could be 10 years time.

Your options appear to be limited - sell your house, downsize to a much more manageable 200k house - which part of the UK do you live in? and live within your means.

Sorry to be blunt but to be 130k short and retired shows that a serious miscalculation has taken place somewhere along the line.

spindlegs

The bluntness is fine.

We are lucky to have lived in this house as it was really out of our reach in the first place and the only way was an interest only mortgage. We alway knew we would have to downsize and are quite prepared to do that when the time comes. We werent relying on the MIL popping her clogs ....LOL, but are lucky in that she is selling up and givng us our inheritance now, just want to know the best way to handle it as some of the reason for the large mortgate was bad advice in the first place.

Think you will find quite a few pensioners with large mortgages now days.

System

Sell up, buy a nice little place for 150-200k, spend the rest on chequered blankets for your parcel shelf or whatever it is you old'uns enjoy

spindlegs

Thanks for all your advice it has been most useful.:p

IveSeenTheLight

I'm not saying their good or bad, but it's worth looking into selling your property to rent back.
That way you get to stay in your home, but also release the excess to clear the mortgage and increase your savings.

You need to work it out though and make sure you have security in your choice.

Of course it means you don;t own your own home, however you can't take it with you and I'd rather my parents / in-laws enjoyed their wealth than hand it down

Graham_Devon

So you are on interest only too?

I'd think about selling, and buying something smaller outright, rather than relying on inheritance.

spindlegs

We have never relied on the inheritance to pay off the mortgage and the plan was to sell up and downsize when things get really tight. We took one hell of a risk buying the property and have enjoyed 30 years living here and luv it and feel very blessed. We are find ourself lucky at the mo in that MIL/mother is selling her house to move in with my sister as she is now 92 and needs full time care.

She wants to give us our share of the inheritance now we just need to know the best way to use this money. We have been given very bad advice in the past hence the hefty mortgage now, plus poor pension payouts. I do not want to downsize yet as I luv the place I am in but know that will come eventually.

The question is, do we reduce the mortgage, or invest the money or both, is there somewhere we can go to get proper advice as we are very sceptical after our previous experiences.

GeneHunt_2

I'm no expert - but check out the inheritance tax implications if your mother dies in the next 7 years, though she may well be below the threshold.

6% is a very high rate of mortgage interest, you couldn't earn that on savings at the moment so the best thing to do I think would be to pay off at least some of the mortgage, providing you have enough emergency savings. Do you have enough emergency savings? How much do you need?

spindlegs

We only have £5,000 savings at the mo which is going down slowly as we are topping up our income for the emergencies.

Sorry, I got it wrong, hubbie has stepped in, we are only paying 3.5% interest on the mortgage which is fixed til August 2012. We were lucky to get this rate and it has allowed us to stay until 2012 as it reduced our payments considerably, with the previous 6% rate we would of had to move earlier. That will be another factor when and if the inheritance arrives. The house was put on the market yesterday and we may get more than the expected £60,000 up to £100,000 which is a fab bonus and has really surprised us. There will be no inheritance tax implactions, but thanks for mentioning it. x

I must mention that I have a daughter still living at home whom is contributing towards some of the bills.

Thanks for the advice it is really nice to see and hear from everyones elses perspective and is very helpful.

System

If you get to 2012 with 60-100k in the bank you'd be able to remortgage again, paying off a large chunk of the capital. You'd be looking at halving the mortgage payments I reckon.