Pay off mortgage or invest/save

strawb_shortcake

Hi, not sure this is the best place for this but I'll give it a go.

My Husband and I have found ourselves potentially in a position we didn't expect to find ourselves in following his heart attack last month. We have applied to claim on the critical illness cover, and without wanting to count our chickens we want to get an idea of how to use this money in the event it pays out, but fully accept there are if's but's and maybe's before we get to that stage.
Our initial thought had been to pay the mortgage off in full, but on reflection that may not be the wisest decision so looking for some options.
We currently owe £97,500 repaying £450 p/m with 22 years remaining, I am the sole breadwinner so everything is based solely on my wage, I am 36 and he is 41 and we have 3 children aged between 9 and 15. We have no debt besides the mortgage, and I take home just over £2k per month and have a good pension in place.
Should the CI pay out we will receive £100k, to pay the mortgage off would cost £4700 in early redemption charges.
Alternatively we could set £40k aside to pay off 10% each year until our mortgage deal run out in 4 years time (noting that the real cost would be around £32k) leaving us with £60k of which we are happy to lock £40k away for upto 5 years so thought an ISA each putting the remainder into premium bonds, we had also considered putting the £40k set aside for the mortgage.
In 4 years time we would be left with around £44k of mortgage debt.

As you can probably tell I have little idea actual savings and investments so any pointers most welcome,

One last thing, I am risk adverse so not prepared to risk the capital,

Thank you

SmashedAvacado

It's a very personal thing. If the money is paid out, it will be paid out because of this health issue. I would see that as a message that i should perhaps pay off the mortgage (notwithstanding the penalty - although before repaying i would make any "non penalty" payment into it first which might reduce the redemption fee. You will then know, that you will always have a home. That's worth a lot more than an extra 1% or whatever you might be able to get by investing it.

BenjaG

Your thoughts are right. But ISAs are extremely low performing investments. The UK stock market is a huge risk, due to the uncertainties surrounding Brexit. So any cash you have should be used to pay down any penalty free part of your mortgage or as much as justified by the interest saved versus cost of the penalty..

MEM62

annabanana82 wrote: »

One last thing, I am risk adverse so not prepared to risk the capital,

There is no risk-free option if you save or invest the money.

It is a judgement call for you to make as to how you use the money. If the health issues were not a factor I would suggest paying what you can off the mortgage penalty-free, have an emergency fund of 6 month living expenses and invest the rest.

Your OH's situation may dictate that being mortgage free is the kind of security that you are looking for or, alternatively, you could drastically reduce the mortgage but keep some back to enjoy life and have a few luxuries. If you are not reliant on your OH's income to survive then perhaps you are already reasonably secure in your day to day finances.

Whatever you decide to do the sum would bring you a level of financial comfort. It's just up to you as to what you want that comfort to look like.

I hope that your OH makes a full recovery.

MEM62

BenjaG wrote: »

But ISAs are extremely low performing investments.

An ISA is not an investment, it is a tax-wrapper. The performance will depend on what S&S you invest in.

BenjaG wrote: »

The UK stock market is a huge risk, due to the uncertainties surrounding Brexit.

I disagree. Increased risk certainly and maybe even volatile in the short-term but huge risk? I don't see it.

strawb_shortcake

Thank you smashedavacado, that was my initial thought and how I wanted to use the money,but when my Husband suggested the alternative I could see the merit to it, We had no plans to use the money so in theory would have the money to pay off the mortgage if the worse were to happen.
With my Husband's new health issues, it will prevent him from getting further life insurance any time soon and likely to be too expensive. If I were to die my Husband would receive a lump sum pay out of around £90-100k and a small pension plus any future life insurance I take out once this is resolved one way or the other.
BenjaG - I feel we have a very good mortgage deal, currently 1.79% for the next 4 years, I am expecting a jump in interest rates by the time we would/will be looking at re-mortgaging. Making a return on any savings isn't so much a must have, I just want my money to work as well as it can do without risk.
6 weeks ago I would have assumed that in 4 years time my Husband would be in full time employment and I'd have had a promotion and pay increase enabling us to further reduce the mortgage term regardless of interest rates, but after the sharp lesson in nothing is certain I want to ensure I've explored all avenues to best protect our future family finances.

george4064

MEM62 wrote: »

An ISA is not an investment, it is a tax-wrapper. The performance will depend on what S&S you invest in.

Not quite.


An ISA is a generic term for a tax-wrapper, and a Stocks & Shares (S&S) ISA is a type of ISA available. The performance of the S&S ISA depends on what you invest into within the S&S ISA wrapper.


Sorry, but I had to correct you!

Terry_Towelling

Are you certain that this payout will be in the form of a lump sum - or is that just the maximum level of coverage for the premium being paid?

I ask because I am concerned that it may just cover your husband's financial commitments/income for a certain period of time (or as long as he is incapacitated) and that whatever those financial commitments may be, they will only be covered on a month by month basis.

On a general level (and if it is a lump sum) this sort of insurance cover is surely designed to help people through difficult times and it is probably not worth putting it at any risk (other than perhaps inflation).

I don't believe it is wise to 'assume' that your world will be back to normal in four year's time (although I hope it is) however, if four years is a realistic assessment backed by medical opinion, then surely the (lump sum) money needs to be seen in the light of a salary-replacement for your husband and, perhaps, saved in a sort of 'ladder' style (easy-access, 1 year, 2 year and 3 year accounts). Even that carries some risk because you don't know what will happen to savings rates in the coming years and you don't know if you're likely to need any of the inaccessible cash at short notice.

Throwing it all at the mortgage might be good, might not. Should you need to claw any of it back in the future, you may have problems because you don't know what your husband's working situation will be and whether you will be able to re-mortgage if you need the cash.

Best of luck with your decision - I know what it's like to have your world turned upside down by health issues. Minimal risk is the way forward I'd choose until you have a better idea how things are gong to pan out - and don't forget about your husband's NI/pension contributions during the time he cannot work.

strawb_shortcake

Terry towelling - any payment would be a lump sum paid under our life assurance plan. As he was only working 5 hours a week when we took the policy out and at the time of his HA we did not have income protection for him. As it is the mortgage is all on my wages as his small income was negligible. The point I was trying to make in my above post was that nothing is for certain so who knows what the future holds, as for my Husband's health there is no reason that he won't make a good recovery, it's just that the type of HA he had qualifies for the payout dependent on troponin levels.

atush

So sorry to hear he is ill at such a young age.



If you do set aside money for the Mtg, that is fine- but how are your savings generally? Do yo have 3-6 months of outgoings in cash? If not, boost these savings.

Then i would boost your pensions. So 40 cash for mtg, set aside in higher interest accounts incl reg savers, 20K boost to cash emergency fund, and 40K into pensions. If you already have a good emergency fund then a S&S isa or 2 for that 20K. /invest in a global multiasset fund such as the Vanguard 40 if you are risk averse,

strawb_shortcake

We have around 3 months of bills set aside, if I were unable to work due to ill health I get 5 months full pay and 5 months half pay, but agree we need more in savings in case of emergencies.
We've never had the money to make proper savings but we do manage to put aside £500 per month some of which is used for treats, birthdays and Christmas, however I don't allow this account to go below £3000. Beyond premium bonds and ISA's I have little idea of what other options are available.