Paying off mortgage early, in full

CashSaver48

Hi,

I've recently come into some inheritance, enough to pay off my current mortgage outright, which happens to end its current fix rate period this August. So i'd incur no early payment fees after August if I chose to pay off the mortgage early.

The mortgage amount left to pay is £185K, rate currently at 3.59% Fixed, changing to 4.74% in August when current fixed period ends, shifting me to current variable rates.

Now, I'm 37 and as such didn't expect to inherit anything ever, let alone so young.
So I feel I have options, as i'm obviously still working and earning a wage. i'm not in my late 50's nearing retirement where my options might be less. If you get my meaning.

My question is what are my viable options in today's financial environment?
Yes, i'm meaning post-brexit UK, in whatever form that takes! What am i wisest doing in the short term to benefit my long term prospects.

The way I see it I have a couple of options, which do you think would be best?
Or please let me know if you think there are other options open to me that I haven't yet considered.

Option 1:
I pay off the mortgage completely and then invest the residual inheritance (roughly £200K in ISAs, Stocks, buy to rent property. That way i could then save the money which i'd usually be putting into mortgage payments each month. Putting it in my work pension fund account for example, or some other investment options.

Option 2:
I don't pay off the mortgage, instead overpay each month to the max allowed. Leaving more money in the short term to invest in ISAs, Stocks, savings etc.

Option 3: ???
Any thoughts people?

thanks

Thrugelmir

Personal choice. Myself I'd opt for mortgage free. Considering there's a sizable sum left to speculate with. One less thing to worry about in the future.

Not paying off the debt could be a double whammy. House price falls, interest rate rises while stock markets fall. Leveraging with debt is a double edged sword. All very well until it goes wrong...........

Only speculate with what you can afford to lose.

pinknsparkly

Given that even after paying off your mortgage, you'd STILL be left with over £200k, I personally would pay off the mortgage and save the rest in stocks and shares ISAs. What are your pension provisions looking like? I would be considering massively increasing pension savings (paid for using the money that you're now not spending on mortgage repayments). I would also be planning a nice holiday and possibly some home improvements.

Buy to let is an option for you, but think long and hard before going down that route to make sure it's right for you. Personally, I can't imagine anything worse than having to be a landlord and sorting out burst pipes and leaking toilets in the middle of the night for a house I don't live in. The tax advantages of buy to let are far less generous than they used to be and it's not an easy money maker. If you want to invest in property as you think that property values will increase, you can do that by investing in property funds which will spread your money across a range of properties/types/locations.

AnotherJoe

Pay off the mortgage since that is a guaranteed, zero risk, zero tax return of around 4% which is better than you'd get anywhere.

Pension. Maximise your contributions.
Are you are high rate taxpayer? If so, even more so pension.
And then general investments and some cash savings

BTL is a high risk, high hassle, low return business now with increasingly onerous legal obligations. Steer clear as spinknsparkly said.

CashSaver48

Thanks for all the sage advice there guys, much appreciated!

To answer a few of your points.

I'm not a high rate tax payer, i'm relatively close to that threshold, but not quite there as yet.
I think paying off the mortgage is the way i was leaning anyway, nice to hear you guys agreeing with that idea, makes me feel better.

Re the pension, i've been woefully late to the game with that one. Only really started paying into a private pension 5 years ago, at 5% of wage, with my company matching that. At 37 years old I was starting to worry about that, but now at least have the option to move some money into that pension pot NOW to avoid later issues. I was thinking 50K? to make up for say the past 15 years of stupidity?!

I'll be more honest that i'm less 'buy to rent', more 'buy to do up and flip' minded. I'm no sparky or plumber but definitely handy, grandfather was a building contractor and therefore raised me in the garden and garage as it were! I just steer clear of anything which requires a certificate to back it up. And from doing up our last few houses and making a profit on both, i know a good set of the right people to get the work done.
But i wouldnt dive into this, i'm very much thinking of doing my mums house up as a beta test to see how efficient I can do it, and how much I enjoy it first!

regarding the investment side. Do you reckon doing that through a financial adviser? or do you think this is something I could do myself? I'm keen not to haemorrhage money through fees on things which I could feasibly do myself.
Going through the probate process myself has taught me that I seem to be far more efficient than the accountants that handled my mums estate.

Any thoughts welcome

AnotherJoe

CashSaver48 wrote: »

Re the pension, i've been woefully late to the game with that one. Only really started paying into a private pension 5 years ago, at 5% of wage, with my company matching that. At 37 years old I was starting to worry about that, but now at least have the option to move some money into that pension pot NOW to avoid later issues. I was thinking 50K? to make up for say the past 15 years of stupidity?!

Well you cant just dob £50k in one go, but you can trickle feed it in, either to a company pension as higher contributions, lets say 15% and then make up what you are missing from the (notional) £50k or by investing directly into your personal pension. Are you self employed? Otherwise your employer should be putting into a company pension for you as well.



If you have no experience of pensions/investing maybe better to just bump up your company pension. Do they do any matching of contributions ?If so maximise those as that is literally doubling your money.

CashSaver48

Yes, they match my contributions, which is currently 5% of monthly salary. So essentially i'm getting 10% of monthly salary, so roughly £200 a month going in.
Oh, do pension contributions go in pre or post tax? as that could make a reasonable difference there.

So how come you cant just drop a lump sum into a pension account? Is it a tax issue?