Inherited £100k - game changer

lisyloo

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.

Doesn't the latter have all the benefits and none of the downsides?
If flexibiity costs you nothing and you are content that you will be disciplined then I'd take the flexibility.

Something else unexpected could happen - either good or bad.

bostonerimus

Paying off low interest debt with a lump sum is often not the optimum way to manage your finances. You lose the utility of having that money on hand and also probably larger investment gains than the interest rate on the mortgage. It sounds as if the house will be large for just the two of you, but that you want to do this as you like living there. That's a good reason to stay, but probably not a great financial decision. If you are looking to maximize your retirement income finances you'd probably keep the 100k and downsize the house. But the are factors other than money to consider.

ColdIron

darwin777 wrote: »

good advice, thanks

New poster rapidly building up post count with pointless random replies

steampowered

It sounds like you want to decide whether to reduce your mortgage term, or just overpay the mortgage.

There is no financial difference between (1) retaining an 11 year mortgage but overpaying so that you clear it in 5 years, or (2) changing to a 5 year term.

Assuming that your mortgage does not have any penalties for overpaying, you are better off doing option 1. The financial outcome is the same if you keep overpaying, but option 1 gives you more flexibility to temporarily reduce or stop your overpayments if you need to for any reason.

However - have you checked whether your pension provision is adequate? You get the numbers to estimate what your income would be in retirement. If the income will not be not enough to achieve your desired standard of living, you should consider putting the £100k into a private pension rather than overpaying the mortgage. The return you'd get on a pension is likely greater than the interest you are paying on your mortgage. You may also be able to claim tax relief on pension contributions which you can't on overpaying the mortgage (it is probably worth speaking to an IFA about this).

atush

Charlie_Paris wrote: »

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.

But the question is, WHY do you want to stay in the house when you were previously going to downsize?

Why change your mind just because you have an extra 100k?

If you are going to do it, i'd whack as much into a DC pension as your allowance will let you between now and the retirement of the first party. AS that money will get a tax uplift, so could still be used to pay off the mtg.

I personally would still downsize, and invest the 100K into pensions, S&S isas and cash.

Charlie_Paris

atush wrote: »

But the question is, WHY do you want to stay in the house when you were previously going to downsize?

Why change your mind just because you have an extra 100k?

If you are going to do it, i'd whack as much into a DC pension as your allowance will let you between now and the retirement of the first party. AS that money will get a tax uplift, so could still be used to pay off the mtg.

I personally would still downsize, and invest the 100K into pensions, S&S isas and cash.

Thanks for the financial suggestion - that sounds sensible and I hadn't thought about the tax uplift. I'll have a look into it.

I am going to have to find a way for people to stop talking about downsizing because I am not asking for advice on whether to downsize.

I have tried to steer it back to financials and failed so perhaps I need to explain better...

We never wanted to downsize - this is our family home and we are happy here - but we knew that we were going to have to do so when my husband retired as we couldn't afford the mortgage then. We accepted that. The original plan was going to carry on working until he was 70 when the kids would have totally left home. He's decided he wants to retire earlier and so we were going to have to sell the house for him to do that.

I said in my original post that the kids have semi left home. We have two - one is in his first year of uni so he's back home 6 months of the year, the other one is travelling and due back in June with no plans after that. You personally may be okay selling the family home and downsizing but this is our decision and we don't want to. We want to stay in our family home and have room for our kids in their late teens and early twenties.

I'm sorry if I'm sounding defensive here but we have had huge changes this year including bereavements and I expected financial suggestions about the mortgage or savings, not people asking me why I wanted to stay in my house. One asked if I had considered my mobility in 15 years time (post 4) which I tried to steer back to financials - perhaps the way to do it is to give more personal details - the kids, that we are only 54 and 64, that our neighbour is 90 and fine in the house, that we run marathons, etc, etc. Please can I just ask everyone to leave the downsizing alone please?

Charlie_Paris

steampowered wrote: »

It sounds like you want to decide whether to reduce your mortgage term, or just overpay the mortgage.

There is no financial difference between (1) retaining an 11 year mortgage but overpaying so that you clear it in 5 years, or (2) changing to a 5 year term.

Assuming that your mortgage does not have any penalties for overpaying, you are better off doing option 1. The financial outcome is the same if you keep overpaying, but option 1 gives you more flexibility to temporarily reduce or stop your overpayments if you need to for any reason.

However - have you checked whether your pension provision is adequate? You get the numbers to estimate what your income would be in retirement. If the income will not be not enough to achieve your desired standard of living, you should consider putting the £100k into a private pension rather than overpaying the mortgage. The return you'd get on a pension is likely greater than the interest you are paying on your mortgage. You may also be able to claim tax relief on pension contributions which you can't on overpaying the mortgage (it is probably worth speaking to an IFA about this).

Thanks for your advice - I just called the mortgage company and found out the minimum we would need to pay if we wanted the same mortgage length. We will definitely overpay this to shorten it but the flexibility will come in handy in the year between retiring and drawing the state pension.

His pension is a teachers pension so looks pretty good and he wants to retire next year so not much time for him, however I need to look into this for myself. I will contact an IFA for this, as you suggest.

ValiantSon

Charlie_Paris wrote: »

Thanks for the financial suggestion - that sounds sensible and I hadn't thought about the tax uplift. I'll have a look into it.

I am going to have to find a way for people to stop talking about downsizing because I am not asking for advice on whether to downsize.

I have tried to steer it back to financials and failed so perhaps I need to explain better...

We never wanted to downsize - this is our family home and we are happy here - but we knew that we were going to have to do so when my husband retired as we couldn't afford the mortgage then. We accepted that. The original plan was going to carry on working until he was 70 when the kids would have totally left home. He's decided he wants to retire earlier and so we were going to have to sell the house for him to do that.

I said in my original post that the kids have semi left home. We have two - one is in his first year of uni so he's back home 6 months of the year, the other one is travelling and due back in June with no plans after that. You personally may be okay selling the family home and downsizing but this is our decision and we don't want to. We want to stay in our family home and have room for our kids in their late teens and early twenties.

I'm sorry if I'm sounding defensive here but we have had huge changes this year including bereavements and I expected financial suggestions about the mortgage or savings, not people asking me why I wanted to stay in my house. One asked if I had considered my mobility in 15 years time (post 4) which I tried to steer back to financials - perhaps the way to do it is to give more personal details - the kids, that we are only 54 and 64, that our neighbour is 90 and fine in the house, that we run marathons, etc, etc. Please can I just ask everyone to leave the downsizing alone please?

You shouldn't take any of the comments personally. It is quite normal on this site for people to explore a range of possibilities as this ultimately helps those seeking comments to make more rounded decisions. If you want to stay in the house that is fine, but it is entirely justified for people to ask you to explore all options with the aim of ensuring that you have covered all the bases, and in possibly leading to different suggestions being offered.

Nothing that has been said, or asked, has been rude. If you want comments and suggestions then you need to accept that will almost always result in people asking for further clarification and challenging assumptions that you have made. This is part and parcel of discussing the financials.

bostonerimus

I suggest you do a full budget and retirement income forecast, then you can see how best to pay off the mortgage. It will be a balance between the certainty of getting rid of the debt and keeping the mortgage and putting the 100k into a range of investments that could well produce some good gains. Of course there is the issue of rising interest rates to consider too. So maybe split the difference and pay down by 50k and invest the rest. Cash flow is going to be important in your transition to SP and pension income and so I think you need to work that out for every year.

Eco_Miser

ColdIron wrote: »

New poster rapidly building up post count with pointless random replies

There doesn't seem to be a poster of that name anymore.