Should I Pay My Mortgage Off.

scoutpup

Hello,
I am due to leave the Armed Forces next week and approximately 10 day after I leave I will receive my lump sum £31500.

I currently have a mortgage with C & G £256000 on their SVR currently 2.5 %.

I believe I would be right to pay my mortgage off, but I am looking for some reassurance if possible. Thank you.




PS. will my lump sum affect my working families tax application?

Sepa74

Hi Scoutpup,

Putting the lump sum on your mortgage would definitely be a great way to reduce the amount of interest you pay over the long term.

BUT... leaving the forces is a major life change, and I would also say that keeping the lump sum available in a savings account (you should be able to find one which earns nearly as much if not more as you would earn if you paid it off your mortgage) would mean you were maximising the cash you have available to 'lubricate' you and your family through the change.

When you consider what to do with the money you should also think about things like:

How much 'emergency fund' cash do you have already (general recommendation is 6 months worth) - should the lump sum go towards that?
Do you have any other debts that charge a higher interest rate that you might want to pay off first?
Do you want to take a well earned holiday and be a bit of a big spender with part of the money?

Just some thoughts! I'm afraid I have no idea about the working families tax stuff, I'll leave that to someone else.

Good luck with your new life!

Lois_E

Hi scoutpup and welcome.

Tax credits are calculated on income, and don't take your capital into account. You will lose tax credits by 38% (I think - it might be 37%) of everything you earn over some threshold that I can't remember, but it's quite low. "Earning" means wages and interest. So putting your lump sum in savings will mean that some of what you get in interest is docked off your tax credits, whereas if you pay off your mortgage with it then you'll get to keep more of the tax credits yourself. But Sepa74 has a good point about having money for flexibility. Do you know what you are going to do once you have left the forces? If you have a job lined up, then you'll only need to keep a bit of your lump sum as emergency fund (most people recommend 3-6 months' salary). If you are going to be looking for work, then you'll need to keep your money where you can get at it until your plans are sorted out.

dimbo61

Well your mortgage rate at 2.5% is low and you could earn a little more than that say 3% in cash ISA,s but! we know little about you or your plans.
I would have a look on the tax credits website but if you have over £16K in savings it does effect benefits so why not pay off some of the mortgage now and keep back say £16K
Good luck