Lump Sum Options

grocerjack

I recently got a lump sum of £205k. I want tom pay the mortgage off (£201k remaining) but it seems under my current fixed rate deal (FRD) there is a 5% redemption fee. Which means taking a loan to pay off the redemption fee ...kind of counter productive. Our FRD ends in December 2021 and so unless I can persuade Santander to drop the redemption fee I might have to keep paying until then and the revert to a standard variable rate (SVR) to remove any redemption fee (providing there is no redemption fee on SVR deals). If this is the case then I am wondering where the best place to put the £205k is rather than the 'easy' saver account it is in which will earn it a paltry 0.1% interest rate. I'd consider a 2 year locked deal if it's good. And I'm unsure what bonds are but they seem to come up on searches. Any pointers are much appreciated. it would be lovely to be mortgage free before retirement. 

Shankers

Shawbrook Bank 18 month savings 1.50% might be okay.

Hargreaves Lansdown Active Savings: 18 month savings at 1.25% through Metro Bank could be an option.

Are you able to save regularly? If so, you could subtract the capital mortgage payments from the £201k between now and December 2021 (you can use MSE's calculator to do this and it won't take long), then work out the difference between what you will owe and £205k plus whatever you can save in the meantime. This might allow you to make more of the money you've inherited by contributing the difference to a pension. It might only be £10-15k, but you'll get at least a 20% uplift and if you're a higher rate tax payer then you could benefit from a further 20%. 

The risk if you invest between now and December 2021 (through funds and shares, for instance) is that you may get back less than you put in. Even at this point when markets are lower than they've been for ages, we don't know how bad the current situation will get and so your investment might deteriorate before it gets better and so you might not have enough to pay off your mortgage. 

Other questions to consider: what's your pension like? Do you have enough emergency money for at least 6 months or more? Answering these questions might enable you to consider how much you decide to spend in December 2021: do you pay down your mortgage or pay it off? Could you instead make regular overpayments within tolerance of your mortgage's allowance (usually, but not always, 10% of the balance), avoiding early repayment charges?

Albermarle

'Bonds' can mean numerous different things. Mostly legit, but  Adverts for Guaranteed bonds paying X % on Google or Facebook are to be avoided at all costs.
What you need is a fixed rate savings account . Best two year deals are paying around 1.65% or 1.45% as a fixed rate cash ISA
https://www.moneysavingexpert.com/savings/
Any pointers are much appreciated. it would be lovely to be mortgage free before retirement.  
I am sure this will give you a nice warm fuzzy feeling but often financially it is not the best thing to do. It depends on circumstances but with mortgage rates so low , it could be better to use at least some of the money to increase your pension/retirement funds, rather than tying it all up by paying all the mortgage off.

SFindlay

grocerjack said:

I recently got a lump sum of £205k. I want tom pay the mortgage off (£201k remaining) but it seems under my current fixed rate deal (FRD) there is a 5% redemption fee. Which means taking a loan to pay off the redemption fee ...kind of counter productive. Our FRD ends in December 2021 and so unless I can persuade Santander to drop the redemption fee I might have to keep paying until then and the revert to a standard variable rate (SVR) to remove any redemption fee (providing there is no redemption fee on SVR deals). If this is the case then I am wondering where the best place to put the £205k is rather than the 'easy' saver account it is in which will earn it a paltry 0.1% interest rate. I'd consider a 2 year locked deal if it's good. And I'm unsure what bonds are but they seem to come up on searches. Any pointers are much appreciated. it would be lovely to be mortgage free before retirement. 

You'll want to split it up and keep the maximum £85,000 per institution and currently won't get anything better than the 90 day notice account with Investec paying 1.60% which goes up to 1.65% if you dont put a notice to withdraw in. If rate dramatically drops you get to withdraw penalty free so not a lot to lose and gives you a decent rate without committing to 1 or 2 years in case opportunity to pay mortgage comes up. 

george4064

I would:

1. Pay off as much as you can now without triggering any fees, and set aside the necessary amount in an instant access savings account (Marcus UK maybe) to make a overpayment in 2021.
2. The rest stick in a fixed account for it to mature on (or soon after) your fixed rate period finishes and you can pay off the rest of the mortgage without incurring any fees.

grocerjack

Thanks everyone, some fabulous tips here. I like the idea of the split between Shawbrook and HL from shankers at £85k in each and then the remaining £35k elsewhere. I also very much like the idea from george4064...I will discuss the options with Santander as that overpayment sounds good combined with the above...it will depend if after reverting to SVR in Dec 2021 means no redemption fee. But the blend of both sounds good right now

Thrugelmir

Once the mortgage product reverts to SVR there's no penalty to redeem. All there'll be is the mortgage redemption fee. Which will be in the region of a couple of hundred pounds. 

grocerjack

Thrugelmir said:

Once the mortgage product reverts to SVR there's no penalty to redeem. All there'll be is the mortgage redemption fee. Which will be in the region of a couple of hundred pounds. 

Brilliant, good news, thanks very much

grocerjack

Ok, confirmed with Santander that there is no way of waiving the redemption fee on the current FRD. So paid off 10% (£20k) as an overpayment which reduces monthly repayment. Then put £85k into Shawbrook and Investec 18 month schemes each paying circa 1.5%. The only pain there is the daily limits for transfers but it's just. bit of admin. The remaining £15k has gone into existing ISAs between me and my wife. So that's sorted nicely and I wanted to say thank you to the very kind and thoughtful responders on here. We still plan to pay the lot off at the end of the FRD on reversion to SVR, but by then the capital will be less than we have saved so we have a few quid left to play with then. 

badger09

After the lump sum payment, do you have the option of continuing with your monthly mortgage payments at the same level, rather than reducing them? If so, I would do that. 

grocerjack

badger09 said:

After the lump sum payment, do you have the option of continuing with your monthly mortgage payments at the same level, rather than reducing them? If so, I would do that. 

I did ask that, but they said that would mean I was paying more than needed with no advantage....I think the overpayment means they have reduce the payment by the new amount of interest due. I could have reduced the term, but as our intention is to pay it off at the end of the FRD that didn't seem advantageous. I plugged the new figures into my tracker spreadsheet and assuming I stay employed then we will have a little nest egg after the mortgage is paid off. We have other savings on the go. Thanks for your reply.