MFW Sanity Check

RandomHandle

Hi all, I want to sanity-check a major decision, I've seen this forum but as you can see I'm not a MSE regular. So I'll get to the point.

I am:

• A sole owner
• 22.5 years left on a Nationwide mortgage taken out in from 2013 - due to end in 2038
• 2.5 years into 4yr fixed 2.99% deal
  
• Approx. £120,000 outstanding
• Payments approx. £620/month
• no other debt
• a slightly behind-for-my-age pension
• around £15k savings - enough for the six month rule

Sadly I had a family bereavement some months ago... and will shortly have the tearful pleasure of inheriting a cash sum slightly more than my mortgage.

The 'obvious' thing to do is to pay off my mortgage. It's what I want to do with 'their' money, and it's what I think they would want me to do, as well.

To redeem would have an ERC of 1 yr interest + 1% + £65 (Nationwide): roughly £5k. Which I would recoup in eight months after stopping monthly payments.

A go on the calculator shows I'd save £75k over average 5% interest over the term. And an extra £620/month for the next twenty years would be very welcome, too.

A quick look in this forum reminds me how lucky, and how thankful I am, to have this opportunity.
But it's also a major life decision, and want to double-check I am not missing something by redeeming so... well, so early into the term. (I almost feel embarrassed!)

Other options include:

• Putting the cash into savings: doubt I'd find anywhere near as good a return as paying it off (even the long-term cheap debt of a mortgage). And that's before thinking about tax.
  
• Investing the cash. But that brings risk to 'their' money, which I don't want
• Parking the cash for two years until my deal ends, to avoid the ECR. This means roughly £7200 of interest - more than the ECR if I redeem now
  
• Paying, say, half of the mortgage off now and something like £50k into my pension(!). Given pensions are a slow long term build this doesn't seem right
• Some other clever option / tax wheeze for my situation that I am not aware of - not holding my breath though
  

It seems to me my decision is obvious, but of course you may know better.

Thanks in advance!

freedomby30

firstly sorry for your loss. secondly personally i would take out an offset at the end of your fix... pay no interest, lower monthly payment and still have it for pension. obviously if hard times hit the money is there to see you through or pay off mortgage and lighten your load. this is what id do but at 23 im possibly not the best to ask

bexster1975

Hello RH

I'm sorry to hear about the reason for your inheritance, but it puts you in a great position. The story you tell sounds to me like you have made your decision. Personally, I think it's a great idea. I would be inclined to use some of the £650 a month you save to invest in a " pension" ( I would be flexible about what that means - stocks and shares, property etc. - not really add it to an actual pension I'm afraid).

The best thing about being MF is security. I agree your other options don't seem as appealing overall. If ERC is better than interest charges why not pay it off? If it's less expensive if you wait a while pay it off when the overall cost is least.

Either way, very good luck, whatever you do.

Bexster

gallygirl

Sorry for your loss and I can understand how you feel a sense of responsibility about the money.

What overpayments can you make without penalty? When does an overpayment 'year' start and end? I'd be inclined to try to reduce the ERC as much as possible. Another option is whether they'd let you reduce the term - I've heard of someone being allowed to do that without penalty so they reduced the term to one year and paid 10k off a month :money: - a loophole which has doubtlessly been closed now!

In a straightforward financial sense I'm sure you're aware that paying off the mortgage is less beneficial than investing - but appreciate why you're not prepared to do this. However, you will now have a lot more disposable income do that gives you the opportunity to invest for your future. Not sure what possible advantages there may be in keeping the money in the business and investing directly in a pension - maybe ask your accountant for advice?

Now is the time to think about your long term goals - when do you want to retire (believe me it will come around soon enough, especially if you want to retire early and start planning now!). How much income do you want in retirement in today's terms? Multiply the annual sum by 20 and that's what you're aiming to save by whatever means. It's obviously a bit more complicated than that :rotfl: as you need to account for inflation vs growth and take int consideration what you have already, but it's a good start - have a look or post on the Pensions board for advice.

Good luck.

RandomHandle

Thanks all. I have been overpaying the maximum of £500 a month, which I've worked out knocks around £20 off the ERC each time

Have already tried to increase the minimum repayment - they won't let me, not even by £1! Think they are wise to that trick.

As you can tell, I am more comfortable risking my own (disposable) income than theirs. If I redeem, I intend to spread much of that income in early-stage ethical investments, probably with a social entrepreneur element (maybe via stocks and shares, haven't worked that out yet). Avoid adding all those extra eggs to the basket of an opaque pension. I also don't have or want to run a business.

The last major time I considered my long term life goals was nearly 5 years ago. My circumstances have clearly changed...! I shall re-consider the specifics (e.g. if I intend to ever move / downsize) after I have sorted out what to do here.

RandomHandle

Bumping thread for other opinions. (Admin, I'll only do this once, honest!)

Luckyinlife

Sorry about your lose i myself have been thro one this year myself

Wasn't left anything myself but know how you feel about being lucky to have this chance in life

Personally if i was in your situation id pay it off and then use the money you normally put into the mortgage for investment uses of your choice

You cant put a price on not having a mortgage security it gives you is priceless

There are loads of other choices you could make to offset the interest you pay per year
like shares
saving accounts
premium bonds
buy to let
ect ect bare in mind any interest you make or rent or other income excluding PB you got to pay tax

sooner you stop paying interest the better IMO