insurance payout - what should I do?

msw_2

Hi, I had a health scare earlier this year (all clear now) which triggered payment on my critical illness mortgage insurance. They have paid out the full amount which i owe on my property (£96k). I need some advice around what to do now. I am married with 3 kids. I had planned to pay off my mortgage with this money but now, for various reasons, I am considering paying off £18k leaving £80k outstanding. I will take out life and critical illness ins again. I need advice around what kind of mortgage I should look for to get the best deal. I have a quote from RBS for an offset mortgage on £80k. If I keep the £80k(from the insurance payout) in my current account then it looks like I will pay no interest. (although I know the amount would fluctuate). Their variable rate is 5.9% and they say my monthly payments would be around £797 (paid off in 11 years which is the current outstanding term). If i keep the £80k in my current account then it would be paid off in 7 years roughly. I know it looks strange that I want to keep the £80k but i have my reasons!! I am looking for advice around, is this a good deal, is there a catch to offset mortgages, should I look into paying a bigger sum off - or is there any major reason as to why I should try to pay more off the capital sum just now? Hope this makes sense?!

UK007BullDog

Lucky you and in more ways than one. Good to hear that the CI paid out, and congratulations that you made it through the health scare.

You might not be able to get life or CI again, unless you had paid for that option before and also depending on the CI you had.

You might have your reasons, you don't say what they are, why you don't want to pay off the whole mortgage. Personally I would pay off at least half into the mortgage as you would save a lot of money paying interest, plus it makes your monthly outgoings a lot less. Kids are expensive.

Offsetting is OK however you need to make sure you can afford the higher payments if your borrowing reaches its max.

There are a number of lenders that do offset mortgages and you might want to look at the Woolwich/Barclays offer as you can have reserves and savings accounts attached to the mortgage.

Intelligent finance also offers a good offset deal.

You really need to research this as offset mortgages are a bit more expensive to regular mortgages.

Interest rates are currently going up. So it might be best to pay the whole mortgage off and start saving. You have 3 kids and not knowing your age you have 11 years still on your mortgage. You might want to keep the money for their future or invest somewhere. However that is risky.

So do your sums carefully, try to get as much advice as possible.

Also if the money is "hidden away or tied up" you are less likely to spend it on luxury items.

You also need to think of your personal future and your partners future. What would happen if you get a remission in the future? How could you cope with a big mortgage and being older? Would it not be better to get rid of the mortgage and instead use the money to save in tax free savings and so forth.

silvercar

if you put all the money in the offset, you could reduce your mortgage payments to very little. That way you have effectively paid off (or at least balanced off) your mortgage but have the money available should you need it.

I have friends whose mortgage is completely offset, they pay no monthly interest yet the money is available should they need it.

herbiesjp

You could look at cheaper "fully flexible" mortgage rates. So you can overpay the amount you want, but then have the ability to draw back teh funds at any time when you want to.

The rates tend to be lower than the offset deals.

HTH

Poppy9

msw wrote:

Hi, I had a health scare earlier this year (all clear now) which triggered payment on my critical illness mortgage insurance. They have paid out the full amount which i owe on my property (£96k). I need some advice around what to do now. I am married with 3 kids. I had planned to pay off my mortgage with this money but now, for various reasons, I am considering paying off £18k leaving £80k outstanding. I will take out life and critical illness ins again.

I think you will find it almost impossible to get CI cover again. You will also have to declare your illness on any life insurance cover policies and things like travel insurance.

If I was in your position I would pay off the mortgage.

msw_2

thanks everyone for your replies - i have looked into the insurance issue and i will get it again - though with some restrictions. It is a really difficult decision to make...I will try to get as much good advice as poss.

mountainofdebt

I must admit I would pay off the mortgage and put aside what you would have paid in mortgage payments into a savings account each month.

If you can get life assurance it would be at a higher premium than before becuase of your previous health scare (if you didn't disclose it then if the worse happened it is possible that the claim would be null and void) and I would suspect critical illness would not include the condition from which you suffered from.

Being abit of a devils advocate here, if your mortgage was paid off completely, would you need life assurance ?

EdInvestor

If it were me, I think I'd pay off half to reduce outgoings and offset the rest. When a serious health issue is involved IMHO a larger cushion of available cash is warranted.