Need to invest inheritence temporarily

Twentytwothousand

We will use the inheritence (about £160k) to pay a big chunk off the mortgage but at present the early repayment fee quoted is much more than the interest we'd be paying over the same period of time. So, in theory, we need to invest it for 18 months whilst waiting for the fixed rate mortgage and penalty to end.   We are clueless about investments and just need it somewhere safe, to earn a bit of a return and where we can't dip into it and squander it on lovely things (because otherwise, we'll never own our home).   or do we just max out our Premium Bonds allowance with most of it and cross our fingers for a nice win? Mortgate interest rate is 1.79% and have already paid maximum 10% overpayment before calculating these figures. 

Albermarle

Similar questions are asked all the time , so maybe worth spending some time scrolling through the forum.
Anyway you will see always two answers
1) Any money you need within a relatively short period of time ( two years) should be kept as cash savings/premium bonds.
2) Adding more to your pension can make more sense than prioritising paying off your mortgage. Or at least doing some of both .

MEM62

Albermarle said:

2) Adding more to your pension can make more sense than prioritising paying off your mortgage. Or at least doing some of both .

This is absolutely sound advice.  

Also OP, your mortgage rate is 1.79% - if you leave the money invested in a moderate risk fund you should see a return of around 5% in the long term.  Therefore you will be using money that could earn you 5% to pay of a debt that is costing you 1.79%.  Think about why you would do that?       

Thrugelmir

MEM62 said:

Albermarle said:

2) Adding more to your pension can make more sense than prioritising paying off your mortgage. Or at least doing some of both .

This is absolutely sound advice.  

Also OP, your mortgage rate is 1.79% - if you leave the money invested in a moderate risk fund you should see a return of around 5% in the long term.  Therefore you will be using money that could earn you 5% to pay of a debt that is costing you 1.79%.  Think about why you would do that?       

The long term is based on a 100 plus years of data. Markets can be extremely volatile, as is the case now. With interest rates set to rise. Equities might not be the safe option. Being mortgage free for most people removes the biggest financial worry that hangs over them during their working lives. 

MEM62

Thrugelmir said:

MEM62 said:

Albermarle said:

2) Adding more to your pension can make more sense than prioritising paying off your mortgage. Or at least doing some of both .

This is absolutely sound advice.  

Also OP, your mortgage rate is 1.79% - if you leave the money invested in a moderate risk fund you should see a return of around 5% in the long term.  Therefore you will be using money that could earn you 5% to pay of a debt that is costing you 1.79%.  Think about why you would do that?       

The long term is based on a 100 plus years of data. Markets can be extremely volatile, as is the case now. With interest rates set to rise. Equities might not be the safe option. Being mortgage free for most people removes the biggest financial worry that hangs over them during their working lives. 

You point re the markets risks are quite right.  However, it is still likely that the OP will gain more from investment than they save in clearing the mortgage in my opinion.  Clearing the mortgage just for emotional comfort does not make sense to me.  

Thrugelmir

MEM62 said:

Thrugelmir said:

MEM62 said:

Albermarle said:

2) Adding more to your pension can make more sense than prioritising paying off your mortgage. Or at least doing some of both .

This is absolutely sound advice.  

Also OP, your mortgage rate is 1.79% - if you leave the money invested in a moderate risk fund you should see a return of around 5% in the long term.  Therefore you will be using money that could earn you 5% to pay of a debt that is costing you 1.79%.  Think about why you would do that?       

The long term is based on a 100 plus years of data. Markets can be extremely volatile, as is the case now. With interest rates set to rise. Equities might not be the safe option. Being mortgage free for most people removes the biggest financial worry that hangs over them during their working lives. 

You point re the markets risks are quite right.  However, it is still likely that the OP will gain more from investment than they save in clearing the mortgage in my opinion.  Clearing the mortgage just for emotional comfort does not make sense to me.  

Emotional comfort? I think you've totally missed my point on that score.  As for the markets we all make our own judgement calls based upon our own research and personal experiences.  If you've read the fable of the hare and the tortoise. You'll know who wins the race in the end.

Albermarle

Thrugelmir said:

MEM62 said:

Albermarle said:

2) Adding more to your pension can make more sense than prioritising paying off your mortgage. Or at least doing some of both .

This is absolutely sound advice.  

Also OP, your mortgage rate is 1.79% - if you leave the money invested in a moderate risk fund you should see a return of around 5% in the long term.  Therefore you will be using money that could earn you 5% to pay of a debt that is costing you 1.79%.  Think about why you would do that?       

The long term is based on a 100 plus years of data. Markets can be extremely volatile, as is the case now. With interest rates set to rise. Equities might not be the safe option. Being mortgage free for most people removes the biggest financial worry that hangs over them during their working lives. 

At least if it is ( partly ) invested via a pension , there is the  immediate cushion of some tax relief. Maybe quite a lot depending on their salary ( which we don't know). Also depends on their job security .

Twentytwothousand

Thrugelmir said:

MEM62 said:

Thrugelmir said:

MEM62 said:

Albermarle said:

2) Adding more to your pension can make more sense than prioritising paying off your mortgage. Or at least doing some of both .

This is absolutely sound advice.  

Emotional comfort? I think you've totally missed my point on that score.  As for the markets we all make our own judgement calls based upon our own research and personal experiences.  If you've read the fable of the hare and the tortoise. You'll know who wins the race in the end.

Yes, not emotional comfort - basis for interest only mortgage is that we agreed to use inheritance to pay it down. It’s high for someone in their fifties. It will be a lot smaller.  We still won’t own house but will own it by the time I retire on this basis.  

Thrugelmir

Twentytwothousand said:

Thrugelmir said:

MEM62 said:

Thrugelmir said:

MEM62 said:

Albermarle said:

2) Adding more to your pension can make more sense than prioritising paying off your mortgage. Or at least doing some of both .

This is absolutely sound advice.  

Emotional comfort? I think you've totally missed my point on that score.  As for the markets we all make our own judgement calls based upon our own research and personal experiences.  If you've read the fable of the hare and the tortoise. You'll know who wins the race in the end.

Yes, not emotional comfort - basis for interest only mortgage is that we agreed to use inheritance to pay it down. It’s high for someone in their fifties. It will be a lot smaller.  We still won’t own house but will own it by the time I retire on this basis.  

Reminds me of an old saying. When other people lose their job it's a recession. When you lose your own it's a depression.