what order? Suggestions please.

trailingspouse

If you had a new mortgage for £190,000, a car loan for £14,000 (but no other debts), very little in the way of savings (having just paid a deposit to buy the house), and a pitiful pension, and came into some serious money (£250,000 over the next year), what order would you do the following in -
pay off the mortgage,
pay off the car loan,
build up the savings
build up a pension
bearing in mind you'd also need to pay for normal day-to-day living, do the house up, have a holiday etc.
We're in our 50's, the mortgage is over a 19 year term, and there are early-payment penalties for the next couple of years (we can pay off an extra £500 a month over and above the normal amount). As far as I know there are no penalties for paying off the car loan early.
Creative suggestions are especially welcome.

innovate

Considering your age, my number 1 priority if I were you would be to pay off any debts incl mortgage. I would even re-mortgage if that lets me pay off the portage faster.

I'd probably then pile every last spare penny into making provisions for income in retirement.

I would also consider holidays at home, e.g. to do the house up.

theoretica

You need to calculate exactly what paying off the mortgage now will cost you compared to the interest you will pay (less interest gained in having the same amount in savings) until the early repayment charge is gone.

Pay all the debts off unless your other use for the money is something you would borrow to do. Put the money you will save monthly from not having to pay mortgage & car back into a pot for retirement, next time the car needs replacing and holidays.

jimjames

trailingspouse wrote: »

I
bearing in mind you'd also need to pay for normal day-to-day living, do the house up, have a holiday etc.

But remember you'd be paying for normal day to day living anyway so this money could be used for something different to enhance your future retirement income or make things more comfortable in the meantime.

Personally if you had already budgeted for the loan and mortgage I would use a proportion of the money into a pension and investments rather than paying them off. Keep enough as cash to be able to pay for emergencies and overpay the mortgage to try to get the term down to no later than when you are 65.

The reason I say pension and investments first is that the longer they have to grow the better for compounding returns, paying into a pension month by month rather than mortgage will not give the same benefit.

UsernameAlreadyExists

Obviously get rid of the car loan first.

There's no point in paying penalties to clear the mortgage until you're out of that period.

Buy a pile of gold and bury it in the garden (semi-serious actually, get some CGT free coins and tuck them away in a decent safe - diversity etc).

Are you happy with the house/location you're in? With that sort of money could you take a nice jump up, enjoy it, and then downsize later? I.e. enjoy living in your money - you can't live in a pension.

grey_gym_sock

i'd start by paying off the car loan.

the mortgage depends on the rate and the LTV. if they're quite high, then i might well pay overpay by £500 per month until the penalties end, and then make a large overpayment to reduce the LTV to 60%, and remortgage at a cheaper rate.

pension contributions: maybe. if either of you can get 40% relief on them, almost certainly a good idea. if you don't have much pension provision already - or if 1 of you doesn't have much - then putting more in could be worthwhile. note that you can each contribute £3600 per tax year (including tax relief) even if not earning.

if there's 1-off expenditure - doing up the house, holidays - that would improve your lives and you can now afford, then go for it.

keep a decent bit in cash. consider S&S ISAs for any left over.

atush

Car loan first.

3-6 months in spending into Cash ISAs. Second

Then I would look at a pension.

I would then think about the mtg, but it would depend on the rate. I would not pay off any of the mtg if it was low, but instead look at S&S ISas. If your rate is high, I would spend the rest on lowering it if not paying it off entirely.

I would then invest any money I used to spend on mtg repayment into S&S Isas.

maryjanell79

I personally would pay off the car loan as this will have the highest interest rate.

I would then aim to pay off the mortgage faster, however if this is likely to be a long term plan to pay this off I would also put small amounts aside for an emergency fund.

Then cash ISA and then a stocks and shares ISA or SIPP.

But that's just what I would do

Eco_Miser

When you get this money, you will have a quarter of a million pounds in savings, which will reduce when you pay of your debts, but still be over £40,000. That's enough for the rainy day fund. You also have in place, presumably, a plan to put away some £300,000 over next 19 years. If you pay off the mortgage as soon as you can, that £300K can be diverted to building up your pension and savings.

That is, you can pay off all your debt, put some money by, and live off your planned mortgage repayments, and still have enough left over for some regular savings.

Whether the saving of interest on paying the mortgage early exceeds the gains you would make by investing a large lump sum in pension or other investments depends on the interest rate you are paying, and the investment rate of return (which is usually only known in hindsight, but you can guess).

Personally, I would pay off the mortgage either immediately, or when the early-payment penalties have gone, depending on their size), then make sure most of the money I would have been paying on the mortgage was saved towards retirement, in a SIPP and/or S&S ISA. The rest would go on home improvements, holidays etc.

The car loan? The same reasoning applies.

Totton

Car loan and then the mortgage, getting rid of those is a fantastic feeling and improves your stress levels no end.

VfM4meplse

How do you get a 19 year mortgage in your 50s?