What would you do?

dannymagill

Hello there. I'm generally just a reader of all the brilliant advice, but today i need would like some personal guidance if possible.
My wife and i have recently sold a flat we were renting out in Central London. We got fed up with with the phone calls at strange times and decided to sell up. Since having children we've been struggling financially and finding it increasingly difficult to make ends meet (one toddler and another on the way). We took the decision to sell now to try and keep the wolves from the door and make things easier (although the long term plan was to keep the flat as a means to a pension). As we sold within 3 years we didn't have to pay the higher tax rate and as a result have come away with just over £100k. We are in a very privilleged position and feel very lucky to have the money. We don't want to come across as bragging, but neither of us are very good with money and we certainly have not had such an amount in our account before.
So, what to do with the money? Ideally we would like to sink most of the money into reducing the monthly mortgage outgoings. Our current mortgage deal expires at the end of this year which we are paying approx £1200 a month. But is that the right thing to do?
We have a two bed house and are running out of space fast. Should we get a loft extension or simply make do and look to move in a few years when we're both back working (nearly) full time again?
Should we put some money into an ISA or is it better to put it against the mortgage?
I know it's a great postion to be in, but we're really not sure what to do for the best. I probably haven't put all the necessary info here, so please ask me any questions. I will be very grateful for any advice.
Many thanks
Dan

JoeK_3

Wow!! The easiest answer to this is to pay the £100,000 off your existing mortgage as you would save interest on that figure.

If you are considering a loft conversion, it may be a good idea to pay for that out of the money and what's left pay that off the outstanding mortgage.

The more adventurous of us may decide to invest this figure and gamble on a higher annual return than that paid on your mortgage.

Are you cautious or adventurous?

JoeK

Scott

You said you were planning on the second flat being your pension. Do you have other plans to replace this? Just something to keep in mind.

Also, you may want to look into an offset style of mortgage seeing as your mortgage ends reasonably soon. Not having access to your figures would stop us giving you an exact answer (you'll want to talk to a financial advisor for those anyway), but with that level of savings you'd definitely see benefits in doing that.

[edit] Also, loft extensions rarely add the kind of value to a property that you need to invest, from what I've seen from valuations. [/edit]