Where to put 45k

Albermarle

OP
As you can see there are different opinions. The usual end result of questions like yours is do a bit of each.
Part to reduce mortgage + increased pension contributions + a bit more in cash savings.
It does not have to be all or nothing.

xylophone

How much can you pay off now without penalty?

You could do that  and then divide what is left between a fixed term bonds sufficient to make  repayments in 2024/2025/2026.

Choirgrl

For those suggesting putting (some of the) money in a pension, how does that fit with the OP’s stated aim (and the purpose of the gift) of paying off part of the mortgage?

OP if I were in your position as you’ve described it, I would be looking to save the money until January 2026, maximise the after tax interest I could get until then, and then pay off a chunk of the mortgage when the current fix ended and before I remortgaged. In order to maximise the after tax interest, I’d  probably be looking to put some of the £45k into a cash ISA. With the  additional £100 
you mention, I’d either put it in a regular saver or consider if that might serve me better in the long term by going into my pension.

Albermarle

Choirgrl said:

For those suggesting putting (some of the) money in a pension, how does that fit with the OP’s stated aim (and the purpose of the gift) of paying off part of the mortgage?

OP if I were in your position as you’ve described it, I would be looking to save the money until January 2026, maximise the after tax interest I could get until then, and then pay off a chunk of the mortgage when the current fix ended and before I remortgaged. In order to maximise the after tax interest, I’d  probably be looking to put some of the £45k into a cash ISA. With the  additional £100 
you mention, I’d either put it in a regular saver or consider if that might serve me better in the long term by going into my pension.

It  is a good point, but posters are not obliged just to answer the original question line by line.
Often suggestions the OP may have not thought about can be useful to introduce.
We know from experience that many posters often forget to include pensions in their thinking, whilst at the same time most probably have inadequate pension provision.
They are free to ignore anything suggested .

pjcox2005

AndyW79 said:

Reduce the mortgage at all cost as the compounding is higher for the longer term loan as it builds over the years plus the fees and you can get exposed in 2026 to the unknown. It might seem that you are better off but do the exercise in excel and validate if it’s worth it.

Sorry, but this isn't correct, for as long as you've got the money in an interest savings account with a higher rate of interest than your mortgage rate then that will be the better option and will equally compound. The only caveat is if you held back savings that could have reduced your loan to value ratio to get a lower interest mortgage on the whole lot (plus the point on emotional feeling and benefits). Otherwise it really is as simple as which is the higher rate.

You also won't get exposed in 2026 when the mortgage ceases as you can use the savings (and higher interest earned) to but you in exactly the same position (plus having some spare) than if you overpay the mortgage for those 3 years.

You'd probably lose about £3k if you overpay mortgage but both options at least put you in a good position.

ruthshaw2206

Thanks for your help everyone. 

I take on board the pension comments and if this were my own money so to speak I am aware this is a good option. 

I do work in the public sector so will have a pension and will probably (though you never guarantee) have a couple of inheritances that will be for retirement also though I hate to even think about that. Also unlikely to lose my job due to public sector security. Hubby not so secure as recently left hospitality but is begged to return often so could step in to another job if needed in a split second. 

This money has a very specific purpose so must be used for that. 

Luckily I am not one to be tempted to chip away at money so it will all be safe in that respect. 

I think best for avoiding tax on interest might be to put 20000 in an ISA I think I saw one at 4% and then 20000in a 2 year fixed at over 4% and might just pay the other 5000 in to the mortgage just for simplicity sake and round numbers lol. Then when that ends pop it in a 6 month fixed or highest rate easy access. 

Plan is in Jan 2026 to reduce mortgage to 7 years (currently 17) depending on interest rates (calculations based on what they are now). And be mortgage free before 50. 

I am aware this is not the best plan financially and would probably be best investing for the long term but it’s not really doable. And the giver of the £ is not a premium bond fan..though has the £ from long term investments. 

Final question if it goes to a fixed rate 2 year account where the interest is paid on maturity can this interest be backdated to count towards the previous year so as that previous year counts in terms of the over 1000 in interest threshold? Hope that makes sense. 

Thank you for all the replies as it’s really interesting seeing other people’s stances. 

ruthshaw2206

Or another thought. Could I avoid tax on interest by putting 20000 in an ISA now and then 20000 in the beginning of April? Does that work? Or am I being silly. 

Choirgrl

ruthshaw2206 said:

Or another thought. Could I avoid tax on interest by putting 20000 in an ISA now and then 20000 in the beginning of April? Does that work? Or am I being silly. 

Yes, that works - an advantage of dealing with this as the tax year is about to change. 

On your previous question about backdating interest - no, you can’t do that. You either take the tax hit of getting two year’s interest at maturity or you need to go for an account that gives you the option of receiving interest during the fixed term.

Albermarle

I do work in the public sector so will have a pension

This changes the situation, as public sector pensions are very good, so you should be fine with that.ruthshaw2206 said:

Or another thought. Could I avoid tax on interest by putting 20000 in an ISA now and then 20000 in the beginning of April? Does that work? Or am I being silly. 

That is for sure OK, not literally the beginning of April though ( after 6th ) 

xylophone

https://www.thisismoney.co.uk/money/saving/article-1583864/Best-savings-rates-Isas-Cash-Isa-accounts-fixed-rate-Isas.html

See above - you could open and subscribe £20,000 now and £20,000 April 6