new to site - invest or pay off mortgage

garyb_4

Hello All,

Being new to the site I'm not quite sure what to expect but I'm hoping there are some far more financially astute people out there who can give advice.

My wife and I have just had a cheque come through for £90,000. Due to a critical illness payment. The question is what to do with it. It is aimed at paying off our mortgage but is that the best thing to do?

We would like an extension on the house approx 25k cost. My wife needs a new car and she also deserves a bloody good holiday. That said I would like to lower my mortgage repayments or perhaps eliminate them.

We have now come to the end of our penalty period on our current interest only mortgage so I would also like to move mortgages to repayment if we don't pay off the mortgage.

Should I also look to invest rather than payoff? Loads of questions and probably no right answer. I just want to make the most of the money but just don't know where to start.

Any help would be great. I leave it in the hands of those in the know!
Garyb.

Al_Mac

Pay off the mortgage as the amount you could get it less tax will be less than you save on the mortgage interest.:beer:

Compensationitis

Sell the house and go live in another country until it all runs out then come back to the UK and live off the state.

That way your wife gets a bloody good holiday and you don't have to worry about a mortgage.

You are a long time dead.

Xbigman

How much is your mortgage?

Is your wife suffering long term health problems? Especially if they involve possible benefit claims or if you need to act as any sort of carer.

How secure is your job?

These questions all have a dramatic impact on the answers you might get. In general paying off your mortgage is a good idea. As already pointed out you pay no tax on interest payments you avoid by paying off and you get an effective rate of interest equal to your mortgage interest. IE higher than any savings. You are certainly unlikely to have a safe way to make 8% plus a year, the rough point where savings out perform an average mortgage.
Regards




X

EdInvestor

What other savings/investments/pensions/ISA do you have? How much is your mortgage (is it 90k?) compared with the value of your home?

Joe_Bloggs

It sounds like somebody beat the grim reaper and got an insurance payout that they could actually benefit from. What guarantee do you have that the reason for the payout will not happen again? If you had joint critical illness then the policy probably does not now apply to the nonclaimant. I doubt you will be able to get this cover again. Reduce your stress level and look after yourself and your family.
J_B.

garyb_4

Hello All,

As I said in my original posting I wasn't too sure what to expect but it's obvious from some of the great answers back that you money experts need more info off me to advise properly so here goes:

My mortgage is £89,500 (endowment mortgage)
The critical illness payout is £90,300.
My wife and I had a joint critical illness cover. I think the payout closes the cover?
My wife had cancer and has just been told that the treatment went well(great news!) but will not get the all clear for 5 years. Not sure how this will effect any further cover.

I think the concensus seems to be to payoff the mortgage. Being a financial idiot, I didn't quite understand the tax and 8% thing but I'm here to learn.

Thank you to all who have replied to me
Gary b

Rafter

One more idea for you Gary,

Why not get an 'offset' mortgage from First Direct or Woolwich or IF?

That way you get total flexibility and can choose how much to spend and when.


The tax thing is as follows:

The maximum you could get on a deposit account for that sort of sum would be about 5%. If you pay tax at 40% this is reduced to 3%. If you pay tax at 22% it is reduced to 3.9%. Meanwhile you are paying 5% plus on your mortgage so are losing money.

You might be able to beat the 5% through a stock market investment but this is higher risk.

With an offset mortgage you could borrow 90,000 but put the £90,000 critical illness payout into an 'offset' savings account.

So you have a £90,000 mortgage, £90,000 in savings and pay no interest whatsoever and no tax.

You can then decide how much to spend on your house or a fantastic trip and start paying interest on the difference.

This approach requires some discipline to ensure you don't keep eating into your savings.

Good luck.

R.

homersimpson_3

pay off the mortgage and ensure your financially secure. what if the endowment doesn't pay enough to clear debt. so many caught out by endownment mis- selling? how will you pay mortgage if you blow the 90k on something else.
even after you pay off mortgage there's still £800 left to take wife on holiday. it doesn't have to be somewhere costing thousands. look for a cheap deal. there's masses of them around.
you'll come back debt free and ready to start creating savings pot. save the money (some of it dead money i.e. interest to lender) you were previously paying to mortgage company.also check effect on critical illness cover.
homer

Scott

Just reduce the mortgage to a low level (around 40k) which is an extremely easily manageable amount of money. Your payments will be really low (in the £150 - £200 range, I'd think, if not lower) and you'll still have a sizeable amount of money to treat your wife to the holiday she deserves, take her to nice restaurants and spoil her with a nice new car, with some left, I'd wager and still get that extension.

That's the route I'd take, anyway.

EdInvestor

I agree with Scott's idea which seems to fit in well with the OP's feelings, particularly in the wake of his wife's experience.In situations like these, a different response from one based purely on financial considerations may be the best.

We would like an extension on the house approx 25k cost. My wife needs a new car and she also deserves a bloody good holiday. That said I would like to lower my mortgage repayments or perhaps eliminate them.

I'm assuming you have no children? That might alter the equation, as if there is a likelihood that your wife might succumb and you had to give up work to look after the kids, then it might be better to pay off the mortgage, or a bigger chunk of it.In any case a switch to a repayment mortgage for a lower amount is the way to go, IMHO. Good luck to both of you