pay a lump sum or invest?

Hi
I am redundant and considering paying part of my compensation off of my mortgage.
I have £20,000 to play with and a nice new job lined up to go to.
I have a £43k flexible Nationwide mortgage with 7.5 years left to run at 2% above base rate.approx £480 a month repayment
I would still have £10k left but my salary is taking a £5k a year drop and I believe that if my new job dont work out the nice people from the social security might hold a grudge about wasting money on reducing my mortgage.
Pay a lump sum off my mortgage or use the cash to generate income and use that to part make up my reduced earnings?
What is my best option?

Replies

  • Hi there, really sorry to hear about your redundancy and congrats on finding a new job. I'm sure other people will have some different views on the being the MFW forum, however I would max out your cash ISA allowance and pay the rest off your mortgage.
    The ISA should out perform your mortgage interest and would give you a safety net if things don't work out on your new job. Your mortgage would then be below £30K which will also feel nice. I think state benefits are only affected if you have more than £16K in savings and the £5K in your ISA plus your £10K you set aside would keep you below this figure.
    But I guess the best advice is to do what you feel most comfortable with.
    Mortgage Free Date
    [STRIKE]Original: Jun 2041[/STRIKE], Current:Nov 2022, Target: Oct 2020
    Debts
    [STRIKE]2010/02 £14,500[/STRIKE], 2011/02 £13,000, Target 2012/01 £0K
    11k in 2011 challenge #32 4.8%
  • Cheers Kingster.
    The bit about paying off a lump sum is,if my new job dont work out and if I am unemployed for more than 6 months,those nice people as the DHSS might say I should not have wasted all that money on paying off the mortgage and me and my wife can starve.
    god knows how many years I have been paying more than £65 a week in national insurance and they only pay that for 6 months,
    W.T.F. happened to the earnings related unemployment benefit I paid into for years!!!!!
  • I found the follow information below from http://www.northumberland.gov.uk/default.aspx?page=7613. It does seem that your right to be worried and that also any saving above £6,000 will affect means tested benefits. The £16,000 figure I had in mind means you will be excluded from any means tested benefits.

    I would recommend contacting a benefit advice service like Citizens Advice.
    Getting a redundancy or severance payment

    When you finish work you may get statutory redundancy pay or a lump sum payment from your employer. These payments may count as capital if you are claiming a means tested benefit. Here are some rules about capital.
    If you are under 60 you cannot get most means tested benefits while you have capital (savings) of £16,000 or more. This includes your partner's capital. If you have capital between £6000 and £16,000 you are classed as having a set amount of income each week, called "tariff income".
    Means tested benefits include Income Support, Employment and Support Allowance (income related), Jobseekers Allowance (income based), Pension Credit, Housing Benefit and Council Tax Benefit.
    If the benefit office thinks you have spent capital or savings to help you get more benefit
    In this case they can treat you as though you still have the money - called notional capital. This rule may apply even if you use the money to pay off a mortgage or debts.
    If you claim a benefit and it is refused or you get paid a reduced amount because of this rule it is important to seek advice.
    Not sure what type of payment you will get?
    If you have been offered or paid a lump sum because your job is ending but you not sure what type of payment it is, seek advice.
    Mortgage Free Date
    [STRIKE]Original: Jun 2041[/STRIKE], Current:Nov 2022, Target: Oct 2020
    Debts
    [STRIKE]2010/02 £14,500[/STRIKE], 2011/02 £13,000, Target 2012/01 £0K
    11k in 2011 challenge #32 4.8%
  • Yes,this is my concern and my dilema.
    I work to pay my mortgage,I only need the £5k on my old wage to pay off the Nationwide.Paying a £20k lump sum reduces my need to earn my old salary and makes the new job affordable, but 6 months of £65 a week dole money(if the new job dont work out) will eat up my spare cash.
    Any high interest accounts out there for £20k?
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