Enough inheritance to pay mortgage, how to play it

cloo

As I've said, I'm going to seek advice as well, but I wanted to get some ideas first

McXtravert

If I was in this position, I personally would choose to pay off the mortgage in one sum. Yes, I might take a hit on overpayment charges, but then I wouldn't have a mortgage 'hanging' over me.

I would toy with the idea of putting it into pensions, but who is to say we will all live to see pensionable age. I would opt for having lower outgoings today, knowing that I can put more into pensions on a regular basis yet when an unexpected bill fell into my lap, I have the disposable income to meet it without fretting too much.

Just my thoughts!

ian1246

Personally I'd keep enough £££ in a easy access account (Marcus, 1.45% interest or something) to pay the monthly mortgage for the rest of the fixed term, plus whatever the overpayment amount is you can make each year without incurring fee's (normally 10%) which you'd pay in a lump sum each year.

You"d then put the £££ you earn, which up until now were paying your monthly mortgage, into your pension, the benefit of which is you'd be drip feeding into the stock market, helping ease the impact of market volatility.

As for the rest of the remaining balance? Put it in a fixed saving account (better interest rate than easy access) which matures at around the same time as the fixed mortgage rate.

This allows you to overpay the mortgage, start building up pension & keep a large chunk of the £££ available, getting the best *safe* return, for when the fixed mortgage term ends & thus no early repayment fee's. You can then assess when that time comes what you want to do - pay off the remaining balance, invest in pension or do a combination of something else - you could even do similar to above i.e. if at the time the fixed mortgage term ends and you can fix at say.... 2% rate for 5 years & there are 5 year fixed saving rates at higher than that, you could always fix your mortgage but also then take a fixed saver with the £££ equivilant to mortgage - effectively earning a higher return than the benefits if you paid off your mortgage, whilst preserving the capital to pay it off should things change.

leviathan

steampowered wrote: »

For most people, rushing to pay off the mortgage is a mistake.

I think all the points you make are valid except for this one.
If you pay off your mortgage it's a great noose removed from your neck.
Yes putting the money into pension would be more tax efficient, but if you loose your job (redundancy or illness) you still have a mortgage to pay and you cannt get that capital back to pay it.


You can no longer claim mortgage relief from the govt so whilst out of work you're going to have to find a way to pay the mortgage and live off benefits. This is quite hard to do and why many people fall behind.
But with the mortgage paid off that you own your home isnt considered for benefit purposes. Thats a nice safety net.


And it's no good having the sum as savings as if you find yourself out of work, you cannot just pay off the mortgage at that point and them claim, no, you have to live off the savings first till you find a job or exhaust them !!




I think it comes down to risk. And age.
The OP doesn't say how old they are. If they were 50 then I'd say do the sums and potentially go with your idea of put into pension to claim it back in 5years tax free. If they are 40 I'd say pay off the mortgage and put the mortgage payments into the pension.


EDIT: I read a later post saying the OP is 42. IMHO, pay it off ASAP and dump the current mortgage payment into pension at the same time so you dont even notice anything has changed financially in your take home.

cloo

There is the issue that my husband's freelance in quite a volatile field, so I think that's one reason I want to keep the money available. We can't pay all our bills and the mortgage on my salary alone - without the mortgage we can just about manage on my earnings. We've always managed so far with the money in between contracts (he gets a high day rate), but it's been skin of teeth sometimes and the market is really bad right now.

And honestly no one's job is safe these days - I was made redundant
7 years ago and it took me six months to find a new job, and I wouldn't be surprised if I have a period of redundancy again before the end of the mortgage term. So that's another reason it suits us to have money available.

We also have two kids.

ian1246

cloo wrote: »

There is the issue that my husband's freelance in quite a volatile field, so I think that's one reason I want to keep the money available. We can't pay all our bills and the mortgage on my salary alone - without the mortgage we can just about manage on my earnings. We've always managed so far with the money in between contracts (he gets a high day rate), but it's been skin of teeth sometimes and the market is really bad right now.

And honestly no one's job is safe these days - I was made redundant
7 years ago and it took me six months to find a new job, and I wouldn't be surprised if I have a period of redundancy again before the end of the mortgage term. So that's another reason it suits us to have money available.

We also have two kids.

I think your best bet then would be:

1.) Put 12months total expenses into an easy saver (Best interest rate you can find), that way should your husband find himself out of work/between contracts, you should be able to manage for 12months+ (More if you factor in your pay covering some of the total expenses).

2.) Work out what the Overpayment limit is on your mortgage - normally its around 10% of the remaining balance, every year, without incurring repayment fee's (it will provide you this information in your mortgage paperwork - or just ring them up). Put enough £££ into the easy saver account (or take out 1 x 12month fixed saver, 1 x 24months fixed saver & 1 x 36month fixed saver - each maturing to coincide with each year's overpayment-due date) to cover however many overpayments you'll be able to make before the end of the fixed term - then make those overpayments at the start of each year.

If its based on 10% max overpayment every 12months, with 3 & 1/2 years left on your mortgage fixed term, you should be able to make 4 10% overpayments before the end of your mortgage fixed term (i.e. December 2019, December 2020, December 2021, & December 2022), which would be a massive chunk of the remaining mortgage paid off. This would have a dual effect of saving you on the interest your paying on your mortgage (meaning more of the £££ in your continued monthly payments would be going on paying the capital off vs. without overpayments), whilst also potentially making you eligible for a mortgage holiday if things do become difficult (not all providers offer this, but many do if you have built up substantial overpayment) or, at the very least, allow you to contact your mortgage provider and ask them to recalculate your monthly mortgage payments to factor in the overpayments, whilst still wanting to pay the mortgage off at the original date, reducing your monthly payments accordingly.

3.) Put the remaining £££ balance into a 3 year fixed saver - meaning it will get you the best interest rate you can and then will mature before your mortgage fixed term matures - then pay off the mortgage when the fixed mortgage term ends, incurring 0 repayment fee's!

4.) In the meantime, any interest you earn from the easy saver/fixed saver(s) you can chuck into your pension, along with any spare cash.

5.) After this, your mortgage free :-)

cloo

I definitely need to take a look at the mortgage T&Cs again - I know roughly the penalities for early repayment, but can't recall what it says on overpayment.

cloud_dog

cloo wrote: »

I definitely need to take a look at the mortgage T&Cs again - I know roughly the penalities for early repayment, but can't recall what it says on overpayment.

If it is a percentage then that is usually based on a value at the start of the calendar year. Who is it with?

As mentioned, if you simply reduce the term of the mortgage you will, by default, increase the repayment amount without even going near any 'over payment' consideration.

Lots to consider but, I think you need to decide on what you wish to achieve and recognise that as the primary reason for your next steps. It may not necessarily be the most appropriate financial decision but one that is most appropriate for you.

For example, you mention your OH income varies etc, and from a holistic mental/family well being consideration not having to worry about the mortgage would be a huge benefit (if I were in your shoes).