Received inheritance not sure what to do with it

Hades2k4

We have just received £30,000 inheritance and I could do with some advice on the best way of spending it.

Our current position is;

£5,075 of loans, £400 family loan and ££4,675 bank loan.

£110,000 left on mortgage with £15,000 of equity. Currently on a two year fix which ends in October 2015. We are paying 4.49% interest rate.

My initial plan is to pay the loans off, get our ltv to 80% so in October we can negotiate a better interest rate, go to America for two weeks and also have a slush of money in case anything goes wrong. I'm trying to find a balance of being sensible but also enjoying it as well.

I'm pretty sure it's a no brainer to pay off the loans but I'm not sure about the mortgage.

Advice would be greatly appreciated.

Yorkie1

What interest rate do you have on the loans?

Do you already have any savings?

Do you have pension provision?

The usual opinion is to pay off loans with a higher interest rate than savings, and I'd agree with your suggestion here unless they are 0% interest and will be paid off by, say, next June in the ordinary course of events anyway.

If you are looking to change mortgage deal next year when your fix ends, it would be better for the debt to have gone (and the family loan should be repaid as soon as possible, in my view, for the sake of good family relations / showing your responsibility).

Make sure you don't incur overpayment charges if you do reduce the mortgage to 80%. Two comments which do occur to me though about this plan:

1) I'd ensure I had 3-6 months' expenditure in savings before overpaying the mortgage (i.e. don't leave yourself short through making the overpayments), and

2) what are house prices doing in your area? If going up, then bear in mind that your overpayment won't need to be as much by October 2015 because the increased value of the house will account for reducing the % you still owe.

justme111

Indeed unless loans are '0% . I would prioritise getting better interest on a mortgage at the expense of cash reserves and holidays. You can gave a look at the mortgage market and see what your repayments would be at a lower rate with a chunk of it repaid. If for example they are £200 lower you would be able to both build up your cash reserve from it and enjoy treats monthly. Think how many treats you could have for £100 every month for the duration of mortgage.
Another thing to consider is cost of holiday. My friends went ti florida (family of '4) - it costed them 10 000. If you are fewer and with less expensive tastes it would likely to be cheaper of course but i would beware of overall cost.
In resume my advice is to pay loans, get to as low ltv as you can and burn away whatever left :0. Good luck with it

gallygirl

I would pay off the loans and then do nothing till approaching the end of your mortgage fixed term. House prices are 'softening' in many areas and you can't anticipate now what it will be valued at almost a year away. It would be crazy to miss out on a better LTV rate because you'd spent a fortune on a holiday.

pandora205

Even at that mortgage rate, it is well above inflation, so I'd pay off some (you will probably find there is a maximum of 10% permitted per year without a fee), as well as clearing all loans first. In your position, my priorities would be loans, chunk off mortgage (say 10k) and continue to repay at same rate. Have a look to see that would do to your repayment term - it would make a big difference.
I'd then have an emergency savings fund of around 5k which would leave just under 5k for the holiday (if that's your priority), though I'd throw a 1k into an ISA to start saving for the future.

Hades2k4

Thank you very much for the advice.

We currently have no savings but we are fortunate to have £700 left over every month after bills, food and petrol etc. because we saved hard for our deposit this tends to get spent on luxuries.

I work for a council so I'm currently building a good pension but my girlfriend tends to get jobs which are grant funded and never seem to be permanent so she currently does not have a pension.

The bank loan is 7% interest rate so I will get it paid off straight away. The family loan is free but I will also pay that off in case we need money in the future.

I do like the sound of the emergency fund we currently have the Santander 123 account, would it make sense to leave the money in there or move it to a cash Isa?

patanne

Well £700 a month seems an awful lot to chuck into a black hole every month. Perhaps you could reduce this to £200 a month. So my advice would be to pay off the loans (taking fees into account). Definitely get a pension started for your girlfriend. You need savings to cover your bills for when her grants run out. Personally I would say 6 months, but then I am inclined to be cautious. Have you considered trying for financial freedom? Why not take a look at some mortgage free wanabees diaries.

getmore4less

£10k of debt throwing £700pm away.

Your deposit was mostly made up by borrowing.

Review or you will just end up in debt again.

Mojisola

Hades2k4 wrote: »

Our current position is;

£5,075 of loans, £400 family loan and ££4,675 bank loan.

Hades2k4 wrote: »

We currently have no savings but we are fortunate to have £700 left over every month after bills, food and petrol etc. because we saved hard for our deposit this tends to get spent on luxuries.

:eek::eek::eek:

gallygirl

Hades2k4 wrote: »

Thank you very much for the advice.

We currently have no savings but we are fortunate to have £700 left over every month after bills, food and petrol etc. because we saved hard for our deposit this tends to get spent on luxuries.

I work for a council so I'm currently building a good pension but my girlfriend tends to get jobs which are grant funded and never seem to be permanent so she currently does not have a pension.

The bank loan is 7% interest rate so I will get it paid off straight away. The family loan is free but I will also pay that off in case we need money in the future.

I do like the sound of the emergency fund we currently have the Santander 123 account, would it make sense to leave the money in there or move it to a cash Isa?

You're about to inherit 30k but are still planning to use the bank of mum and dad in the future? Isn't this the ideal opportunity to stand on your own two feet and have savings so you will never need to do that again?

Hades2k4

I'm not planning on using the bank of mum and dad again but you never know what's going to happen in the future. I agree that this is a good time to set ourselves up for the future and this is why I'm on here asking for advice.

With regards to wasting £700 a month, we saved for our deposit which took a long time and resulted in moving back with mum and dad which was difficult. We said to ourselves that any excess cash we have left when we move into our place we were going to enjoy. This is what we have done for the past year and we have had a great time with no regrets.

I understand your comments that financially it's not the best thing to do and that's the advice I'm going to get on here.

From the advice I'm thinking of doing the following;

Pay off the loans straight away
Pay an amount towards the mortgage nearer October 2015
Hold back a minimum of £5,000 for an emergency fund
Reduce the monthly excess cash we have and put into savings. Is this best going to an Isa or our 123 account? Or a first direct regular saver?
Enjoy sum of the money and go America.
Any money left over either goes into the mortgage or savings.