We're aware that some users are experiencing technical issues which the team are working to resolve. See the Community Noticeboard for more info. Thank you for your patience.
📨 Have you signed up to the Forum's new Email Digest yet? Get a selection of trending threads sent straight to your inbox daily, weekly or monthly!

MFW Sanity Check

Options
RandomHandle
RandomHandle Posts: 5 Forumite
edited 9 October 2015 at 5:09PM in Mortgage-free wannabe
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!

Comments

  • 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
    bexster1975 Posts: 1,576 Forumite
    Part of the Furniture 1,000 Posts Photogenic Bake Off Boss!
    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
    gallygirl Posts: 17,240 Forumite
    Part of the Furniture 10,000 Posts Photogenic Name Dropper
    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.
    A positive attitude may not solve all your problems, but it will annoy enough people to make it worth the effort
    :) Mortgage Balance = £0 :)
    "Do what others won't early in life so you can do what others can't later in life"
  • RandomHandle
    RandomHandle Posts: 5 Forumite
    edited 8 October 2015 at 8:53AM
    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.
  • Bumping thread for other opinions. (Admin, I'll only do this once, honest!)
  • Luckyinlife
    Luckyinlife Posts: 1,613 Forumite
    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
    Mortgage--- [STRIKE]£67700 March 15[/STRIKE] [STRIKE]£65221 April 15[/STRIKE] [STRIKE]£64983 July 15[/STRIKE] [STRIKE]£64780 sept 15[/STRIKE] Remortgage [STRIKE]£67295 oct 15[/STRIKE] [STRIKE]£66599 Nov 15[/STRIKE] [STRIKE]£65878.73 Dec 15[/STRIKE][STRIKE] £64834 1st Jan 16[/STRIKE] [STRIKE]Feb 16 £64,511.89[/STRIKE][STRIKE] March 16 £64,056.40[/STRIKE] [STRIKE]April 16 £62550[/STRIKE] [STRIKE]May 16 £62,396.20[/STRIKE] Feb 17 £60.800
    Emergency fund 23k
This discussion has been closed.
Meet your Ambassadors

🚀 Getting Started

Hi new member!

Our Getting Started Guide will help you get the most out of the Forum

Categories

  • All Categories
  • 351K Banking & Borrowing
  • 253.1K Reduce Debt & Boost Income
  • 453.6K Spending & Discounts
  • 244K Work, Benefits & Business
  • 598.9K Mortgages, Homes & Bills
  • 176.9K Life & Family
  • 257.3K Travel & Transport
  • 1.5M Hobbies & Leisure
  • 16.1K Discuss & Feedback
  • 37.6K Read-Only Boards

Is this how you want to be seen?

We see you are using a default avatar. It takes only a few seconds to pick a picture.