We borrowed 50k, but our plans changed. What to do with it now?

KiwiRox

Hello everyone, this is my first post and I wonder if someone in the community would be able to offer some judgment-free advice.

My wife and I have had a mortgage for 6 years - it's a fixed rate deal over 25 years.

Last year during the first few months of the pandemic, my mother (who lives in Brazil and depends financially on us) was facing a very difficult personal situation and facing the possibility of being made homeless.

Considering the exchange and the interest rates, which were both very favourable at the time, my wife and I made the decision to borrow an additional £50,000 on our UK mortgage with the intention of buying a property in our name in Brazil for my mother to live as she gets old. Given the exchange rate at the time, the 50k would be enough to buy a property.

The additional loan was approved by our UK lender relatively easily. After we received the money, we started looking for properties. However, after a few months of search, my mother's situation changed significantly and we decided that it wouldn't make sense to buy a property in Brazil anymore.

So now we are in a situation where we have 50k from the bank but don't know what would be the best thing to do with it.

We currently live on a 3 bed flat. Our idea is to sell this place in a few years and move to a 4 bedroom house or flat.

So we have a few options and I wonder if you could offer your opinion:

- Is it worth using some of the 50k to upgrade our current property and try to increase its value before selling it?
- Is it better to keep this money in a savings account and use it in a couple of years to help us buy somewhere bigger?
- is it worth giving the 50k back to the bank and borrow again whenever we need it?
- Given that interest rates are lower than the house price growth rates, is it better to invest the money? What kind of investment would you recommend?
- Or is it better to try and sell our place now and buy something bigger as soon as possible?

Keen to hear your thoughts. Thanks all

[Deleted User]

It's a binary choice. If you have a use for the funds, then spend it on that. Whether that's building work or a new home is up to you.

If not, repay it unless you can gain more interest that it's costing you.

Thrugelmir

Personally the one thing I wouldn't do is invest it in the hope of a short term term gain.

KiwiRox

Thank you both for your opinions. Useful tips. Thanks!

[Deleted User]

You could do it in a couple of S&S ISA (one each) with the personal limit but you would need to invest the money for 5+ years to ensure you ride out any blips. You could also whack it in premium bonds which might net you some wins.

If you were in it for the long term, I'd go S&S but if you want to have money easily available, I'd pay it back and save the money you would be paying on it in a fund.

ratrace

Pay it back and be in 50k less debt than you are currently.

Brie

I'm with ratrace on this - pay it back at the earliest to save on the interest you are being charged. 

Watch out for penalties for overpaying but in general I would expect the 2% or 3.9% or whatever interest you are being charged is a heck of a lot more than the .1% you will be lucky to get in a savings account.  

But also have a check if you can put it in a savings account with your mortgage provider and have the amount offset against the outstanding mortgage.  That would be essentially the same as paying it back but with the flexibility of having it available for whatever the future might bring.

KiwiRox

Thank you! Some very interesting ideas that I hadn't thought of. Appreciate the input.

philrobo

KiwiRox said:

Hello everyone, this is my first post and I wonder if someone in the community would be able to offer some judgment-free advice.

My wife and I have had a mortgage for 6 years - it's a fixed rate deal over 25 years.

Last year during the first few months of the pandemic, my mother (who lives in Brazil and depends financially on us) was facing a very difficult personal situation and facing the possibility of being made homeless.

Considering the exchange and the interest rates, which were both very favourable at the time, my wife and I made the decision to borrow an additional £50,000 on our UK mortgage with the intention of buying a property in our name in Brazil for my mother to live as she gets old. Given the exchange rate at the time, the 50k would be enough to buy a property.

The additional loan was approved by our UK lender relatively easily. After we received the money, we started looking for properties. However, after a few months of search, my mother's situation changed significantly and we decided that it wouldn't make sense to buy a property in Brazil anymore.

So now we are in a situation where we have 50k from the bank but don't know what would be the best thing to do with it.

We currently live on a 3 bed flat. Our idea is to sell this place in a few years and move to a 4 bedroom house or flat.

So we have a few options and I wonder if you could offer your opinion:

- Is it worth using some of the 50k to upgrade our current property and try to increase its value before selling it?
- Is it better to keep this money in a savings account and use it in a couple of years to help us buy somewhere bigger?
- is it worth giving the 50k back to the bank and borrow again whenever we need it?
- Given that interest rates are lower than the house price growth rates, is it better to invest the money? What kind of investment would you recommend?
- Or is it better to try and sell our place now and buy something bigger as soon as possible?

Keen to hear your thoughts. Thanks all

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Xbigman

How portable is your current mortgage? Whilst it makes short term sense to pay back the money now it's possible in a rising interest rate environment you would have to pay more to borrow the money back later. In your OP you say its a fixed interest rate over 25 years. Do you really mean its fixed for 25 years or do you mean it's over 25 years with a shorter fix in place. Thats two radically different propositions. Another point, if you are able to comfortably afford the mortgage payments on this extra 50 k then you could pay it back but keep your payments the same (so you shorten the term of the mortgage). This would probably be the option I'd go for from the limited information available.


Darren

KiwiRox

Thanks for the suggestion - very interesting approach.  We have lots to thinks about.