Inherited £100k - game changer

Charlie_Paris

We have unexpectedly inherited £100k which is a game changer for us as it means we can retire without selling our house but this is a one in a lifetime decision and pretty scary so would value your thoughts on it.

We are 64 and 54, have a £160k tracker mortgage at 2.09% over base rate with 11 years remaining. I know, I know - too much (£1,300/mth!), too long but we didn’t plan on going to the end of the mortgage term - it just meant we could afford a nice house when the kids were at home. The kids have semi-left home now and we expected to be getting the house ready to sell so we could pay off the mortgage before we could retire but now we might be able to carry on living here and retire. We have a 10 year age difference so we want to retire at 65 (next year) and 58 respectively so we have more time together in retirement.

Everything we’ve read says that we should be using the £100k as a lump sum to reduce our mortgage. Shout if we’ve got that wrong. What we don’t understand is whether we can just carry on with our current mortgage. I’ve checked it doesn’t have any penalties for overpayments but is it sensible to carry on with a 11yr term? If we paid off £100k then the monthly repayments drop from £1300 to £500 but that doesn’t mean we only have to pay £500/mth does it? Can we view the £500 as a minimum monthly payment and vary what we pay as to what we can afford?

When we are both working then we can afford £1300/mth but when my partner retires - which he wants to do next year - our income will drop by about £800/mth. (He’ll get a lump sum but he isn't 100% he wants to use this for the mortgage too.) He gets his state pension a year later which is £550/mth net so it would only be a year when we would have less for mortgage repayments. Then we would aim to shorten the term by overpaying as much as we could.

The other choices seem to be:

Go for a mortgage with a shorter term but why do that if we can change the term by flexibly deciding what we pay as long as over the minimum?

Look at other mortgages. Is it worth going for a 2yr fixed then pay off quickly with overpayments when it goes back to standard rate? Will they even lend to us now?

Further down the line we want to be able to help our kids when they need a deposit to buy their own place in about 7+ years time and that would need a lump sum.

Are there better options? We're fairly cautious. And we have some money in ISAs for just in case and planned spending.

We have never been to a financial adviser - would it be worth it?

kidmugsy

One other possibility that you might like to scope out on the internet: an offset mortgage. You could get one that lasts (say) until the first of you is 75 or 85, or whatever is conveniently available. The idea is that you borrow (say) the same £160k, or whatever smaller sum gives you a loan-to-value that gives you a usefully cheaper mortgage rate. Then you plonk your spare capital into the offset cash account. That effectively reduces the capital you've borrowed and so it reduces the monthly amount you have to pay. But you can remove some money from the offset account whenever you want to at the price of the monthly payment going up a bit.

The beauty of this is that it reduces your monthly payments while still preserving your flexibility.

Another thing worth considering since you are 54 and want to retire at 58: is there any case for you bunging more money into a pension? After all it could be available at 55 if needed so it might not be inflexible.

If you go to an FA make sure it's an IFA: the "Independent" is important. And yes, I think it might be wise.

Charlie_Paris

Thanks - I hadn't looked at offset mortgages. Will look them up.

Re: the pension - it's a local government pension and they are doing AVCs with the Pru which seem to be saying that you put £68 in and you get £100 out in a lump sum (sorry - not clear on the details). But shouldn't we pay our debts off first?

TheLastMongoose

Are you sure you want to stay put? Is your current house going to be suitable for you 10 or 15 years from now? A lot of people don't like to consider this question because thinking of yourself with failing mobility in old age is unpleasant and as such they put it out of their minds and don't move to more appropriate sized accommodation when they are young and fit enough to manage the move.

If it would be appropriate for you to downsize then between the inheritance and the move you might be able to settle your debts now and be mortgage free and more able to enjoy your retirement.

Charlie_Paris

Thanks for your advice but right now, I would like people's views on what to do with £100k inheritance hence why I am posting on a savings and investment forum.

kidmugsy

Charlie_Paris wrote: »

Re: the pension - it's a local government pension and they are doing AVCs with the Pru which seem to be saying that you put £68 in and you get £100 out in a lump sum But shouldn't we pay our debts off first?

If the £100 were to be paid out to you at age 95, then I'd pay off the mortgage instead . If the £100 were to be paid out at age 55, I'd go for the £100. For ages in between I'd discuss it with my IFA, but I'd want to be very careful not to cultivate a superstitious dread of debt. Intelligently used it can be a great convenience.

mollycat

Charlie_Paris wrote: »

Thanks for your advice but right now, I would like people's views on what to do with £100k inheritance hence why I am posting on a savings and investment forum.

Think post #4 makes a perfectly reasonable point tbf.

Maybe the sarcasm wasnt as obvious as it reads

anyway, good luck.

xylophone

He gets his state pension a year later which is £550/mth net

State pension is not paid monthly and it is paid gross, not net.

https://www.gov.uk/tax-on-pension/how-your-tax-is-paid

Your husband can opt to be paid weekly in arrears (on request) - four weekly in arrears is the default position.

https://www.gov.uk/new-state-pension/what-youll-get

Has he obtained a new state pension statement?


https://www.gov.uk/check-state-pension

Charlie_Paris

Mollycat - not sarcastic. Just trying to focus on what to do with £100k

AndyT678

Charlie_Paris wrote: »

Mollycat - not sarcastic. Just trying to focus on what to do with £100k

But isn't the answer to that going to depend on what you want to do with the rest of your life and when and how you want to do it?

Charlie_Paris

Yes it does and we want to stay in the same house and use the £100,000 to pay off some of the mortgage so my husband can retire next year without having to sell the house.

I just don't know whether it is worth changing the mortgage in order to reduce the term or overpay on this one which has the result of reducing the length but gives us flexibility to pay less if we want to during the year we will have less income.