Pay off mortgage or invest/save

Socajam

I would bump up my emergency and life happens fund to 12 months. Yes you will be paid if you get sick, but it is better to have the money there in the bank account.
Pay the 10% off on the mortgage.
Put a small amount in Premium Bonds
20,000 away in the highest interest account you can find, if there are any out there, this you can pay on the mortgage when you are not charged a penalty.
I would not give away 4,700 just to get rid of the mortgage - because that's what you will actually be doing.
This 4,700 could be a couple UK holidays for the family.

atush

annabanana82 wrote: »

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.

Regular savers, higher interest accts such as Marcus at 1.5% et all. Even NSI income bods are around 1.15%. there are others a little higher..Cut back on treats b days and xmas until yoru OH is feeling better enough to go back to work. You cant carry on spending as normal when you re in emergency mode (and windfall or not you are )

strawb_shortcake

atush wrote: »

Regular savers, higher interest accts such as Marcus at 1.5% et all. Even NSI income bods are around 1.15%. there are others a little higher..Cut back on treats b days and xmas until yoru OH is feeling better enough to go back to work. You cant carry on spending as normal when you re in emergency mode (and windfall or not you are )

Thank you, we do seem to be better off without even trying this month, with my Husband previously only working 30 hours a month it is not a huge drop, but with him stopping smoking, eating much healthier and no more take away's has made a huge difference, We've also been able to cancel our planned holiday and claim back the deposit so that has helped make this summer much easier financially. I am typically quite frugal but have realised that I can easily save much more each month, so will filter more into my savings and increase the cushion I leave in my current account each month

MaxiRobriguez

You could change your mortgage to an offset mortgage and leave all the cash in there if you want a middle ground of some sort. Benefits are:
1) You won't pay any interest on your mortgage as long as cash in the offset is equal or greater to remaining mortgage, which will effectively give you a better rate of return on a larger sum of money than putting into a Marcus or similar.
2) Your cash is easy access and can be used at any point if you need to dip in to support your partners health issues.
3) The capital isn't at risk.
4) You could choose a non-fix offset mortgage, which means you have flexibility to change in the future without having to pay up to move it.
5) You don't need a separate emergency fund because you can take emergency funds from the offset.

Negatives are you'll have to pay the also £5k to come out of your current mortgage, and you'll also have to continue paying your monthly mortgage (as that's typically how it works), but you can withdraw this back pretty much straight away as you already have the capital to cover the mortgage. If you go for a non-fix deal for the flexibility AND you have to take cash out for health issues then you may end up paying a higher sum of interest on the amount you take out. You also need the discipline not to dip into the offset for casual spending.

But I think it's a middle ground worth investigating.

steampowered

To answer the question as to what you should do with the money, I think we need to know more about your longer term financial goals.

I guess you need to think about what will the family's income look like after the mortgage has been paid off; do you have sufficient retirement savings or do you need to think about your pension a bit more.

annabanana82 wrote: »

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

If you are hoping to keep the money for the long term, I am afraid it is impossible to avoid "risking the capital".

No matter what you do with the money, you will face "inflation risk" and "investment risk".

If you stick money in cash savings accounts or premium bonds, you have low investment risk, but high inflation risk - i.e. inflation will erode the value of your capital over time.

Over the long term, "inflation risk" is very high and has a big impact. "Investment risk" is much less, since long term investments ride through the day-to-day ups and downs of the stock market.

If you are intending to put some of this money aside for the long term (i.e. over 5 years), you should consider putting your fears aside and taking a stocks & shares ISA in a balanced stock market fund diversified across lots of different companies. While the value of capital will fluctuate over time (investment risk), the inflation risk is much lower.

Vet

I think the security of knowing your mortgage is paid off is far more valuable than gaining some extra £ via investments/bank accounts.
Investments have risks, should you invest the money and in 2-3 years you require it for another reason and it has dropped in value, would you regret the decision?

strawb_shortcake

Thank you all, it's certainly food for thought.

WRT long term financial goals, my plan had been to work towards being mortgage free at 50, this is still achievable even if the CI doesn't pay out and my Husband doesn't go back to work.
On completion of my mortgage the plan was then to invest what was the mortgage payments into a second property most likely a holiday home (obviously this would need further investigation)
My pension is currently estimated to be worth around £32k p/a based on my salary today so at eventual retirement age I would have an above average income. I was fortunate to pay into a very good scheme for 7 years that gives my current linked pension a good boost.

I do like the idea of being mortgage free and I know I would be able to save £500 a month to an account solely for saving, alternately if we were to put £40k aside for over payments the remaining money would be our emergency fund.

MEM62

george4064 wrote: »

Sorry, but I had to correct you!

But you didn't. You made the same statement worded differently.

atush

On completion of my mortgage the plan was then to invest what was the mortgage payments into a second property most likely a holiday home (obviously this would need further investigation)

With your OH off work with a heart attack, i dont think this is the time to invest in a holiday property. They can be expensive to run, i ought to know I own 2.

Use some of the money to rent one, once a year.

Far better invest in DC pensions for both of you. Should his health not recover, you would inherit his tax free, and if you have one you can retire from your DB pension early w/o a reduction.

strawb_shortcake

Atush to clarify the plan had been to purchase a holiday home in 14 years time when the mortgage was paid off not now, when we have no dependants and two full time wages coming in. As it stands I agree now is not the time to be committing to further financial commitments, whether our plan comes to fruition remains to be seen, but we certainly wouldn't rush into it.

My OH does not have a pension through his work, his hours are minimal and it was just to make him more employable when he looks for full time work when our youngest goes to secondary school, it was simply a job not a career. I have always been very loathe to pay into a personal pension as I was led to believe that the return wasn't particularly great. My Mum for example only gets £80p/m but I have no idea how much she paid in.