Inheritance - What to do?

JOHN2502

Hi all, bit of a newbie posting here.

So I have recently inherited £110k from a relative and am in multiple minds as to what is best to do with the money. I have thought of a few options given my situation but all advice considered really. Situation is as such:

Mortgage £223K left to pay with Nationwide
House Bought for £315K in 2015
Current 2 year fixed mortgage ends July 2023 (so 1.5ish years to go) at 1.49%
Monthly Mortgage payments currently £971 with about 22.5 years left

The options I've thought of are as such

1. Do a 10% overpayment this year and next, year (so without early repayment charges). Then when renewal comes up in 2023 put the rest in and reduce mortgage term down to around 8 years (by also upping payment a bit by around £200 pcm which I can afford to do now am not paying a car off). This way will be mortgage free at age of around 42.

1. As above but take out around 10-11 year mortgage and repay 10% if finances allow each year to "buffer" in case of need for savings

3. Put some money into improving the house (new kitchen, small side extension), then overpay with what is lefT of the 110k.

Option 4?

I know this has many variables that I could spend hours typing about, but with building work currently it seems still in high demand, savings rates low and mortgage rates low. What would be best to do? Or what would you do?

Many thanks for your thoughts in advance

John

JGB1955

What's your pension situation?

getmore4less

Plans should consider the big picture of savings and investment(inc pension) to fund retirement and future cashflows.

ie what to do with the income as well as the £110k

Any 40% tax with income -> pension often works out best and you can probably stick in a lump to capture more tax relief .

Other investments S&S ISA  for easier access but still in a tax wrapper.

The question that arises from your post is why the 2y fix 6 months ago?


The pay off the mortgage can feel good but often there are better options when you can borrow at 1.5%

JOHN2502

I should know this more readily and have to admit to being useless/slack with pensions stuff which is silly really.
Single Scottish Widows pension as have only worked for one company since 2009, pension started Nov 2010.
On my pay slips £150 pcm comes out as Salary Sacrifice and I can see that £240.93 goes in each month and the pot is currently £21,370. Oh I earn £36,000 per year full time if that makes any difference to options. Tnanks.

JOHN2502

No tax at 40% as my income is below that (sadly! haha)

We signed up for another 2 year fixed before my relative passed away and left me the money so I didn't know I was getting a lump sum when we did it.

TheMilkmansDad

How old are you? Relationship status, any kids (either now or planned). Retirement plans - when and what sort of lifestyle?

You need to factor these in (and many others!) to any decision you make. What I would say is that you pension seems to be the minimum you have to contribute (5%) I'd maybe look at upping that.

JOHN2502

Yeah, sorry I know a lot of factors play into this, I am 33, living with partner not married with 2 children (aged 4 & 1) with no plans for any more. I would say conservative lifestyle, we aren't big spenders/lavish. Also no debts, credit cards etc.

I could afford soon to up my contribution from work by £100 which it sounds like would be a good idea anyway. Would it then be beneficial to pay a lump sum in (I know there are limits relating to pay so couldn't put the whole 110 in in one lump) or to focus on mortage and pension split. thanks.

getmore4less

JOHN2502 said:

No tax at 40% as my income is below that (sadly! haha)

We signed up for another 2 year fixed before my relative passed away and left me the money so I didn't know I was getting a lump sum when we did it.

The question was more why 2 years and not 5 years fix?

Interested how you got  £223k+ mortgage on £36k that's 6x?

 not married with 2 children

Review the implications of one of you dying as there are no transferable nil rate bands.

Your estates can grow quite quickly with house going up an mortgage going down. 

kids get more  expensive over time.

I would probably keep the mortgage long term and review by overpayments.

Use some of the money to max out the 10% to ease cash flow relatively big mortgage to income.

Review pension, scope to up that a bit or drop a lump in.

Review a disaster fund for loss of income with money you can access(does not need to be instant) like an ISA 
With £1kpm mortgage and living costs that's probably a £20k pot to last a year

adjust depending on partners income as the disaster comes in 2 sizes 1of you losing income and both of you losing income.

plenty to think about. 

JOHN2502

Thanks for your thoughts, it's really appreciated

It was mostly because rates were much better at the time for the 2 year deals and so we went for this again (was our 4th 2 year fixed deal), my brother has a very similar house and has gone for 5 year fixed and ended up paying more than we have over the course of his/ours 6.5 years ownership as rates have gone down and has still paid off about the same as us.

My partner also works, so household income is more than 36K, should have mentioned, otherwise yeah would never been able to afford that.

Making a will has been on my to do list for ages now so I think now is a good time to do this as you mention.

I think I will overpay as you say the 10% as I go each year and also look to increase my pension contribution as seems on the low side.

getmore4less

Always tough timing the mortgage market.
A lot get caught by the rates can only rise.

6 months ago a reasonable choice if there was LTV improvements to look forward to.