Inheritance and paying chunk off mortgage

AircraftHandler

Hi,

we have inherited 135k and intend to take our mortgage right down, or try and pay it off. 

We currently have 180k in our mortgage and it is up for renewal in September 2024. 

We have a 5k redemption penalty on the mortgage, so we’re thinking of paying off 10% this year and 10% next year in a lump sum and upping our monthly payments. 

Has anyone got any advice as to best pay off this mortgage by the time it comes to remortgaging?

Thanks. 

Keep_pedalling

How much interest are you paying on the mortgage? If you can earn a reasonable amount in interest over the amount you are paying then lock it away for a year and pay it down at the end of the term 
.

AircraftHandler

Hi, we’re paying 2.6% on our mortgage at the moment. 

Keep_pedalling

AircraftHandler said:

Hi, we’re paying 2.6% on our mortgage at the moment. 

And you could get 6.2% on your inheritance between now and next September when your fixed will be up.

 https://www.nsandi.com/products/guaranteed-growth-bonds

AircraftHandler

Hi, we have seen that, but I’m also wondering to make a 10% deposit this year and next year and keep the payments the same? 

Petriix

You're objectively better putting the money in the 1 year 6.2% bond and then paying a chunk off the mortgage next year. At 2.6% you're profiting from not paying it back yet.

When you say 'we' you might also benefit from splitting the money into two bonds, one in each name, to minimise the tax payable on the interest. 

Sg28

AircraftHandler said:

Hi, we have seen that, but I’m also wondering to make a 10% deposit this year and next year and keep the payments the same? 

Theres no point, thats 18k that you can keep in the 6.2% savings bond. Paying you around £900 in interest (assuming 20% tax) The 18k extra left in the mortgage you'll pay £426 on in interest over the year.

So you are about £432 better off by not overpaying now and making the whole payment in one go once your deal expires. 

AircraftHandler

Petriix said:

You're objectively better putting the money in the 1 year 6.2% bond and then paying a chunk off the mortgage next year. At 2.6% you're profiting from not paying it back yet.

When you say 'we' you might also benefit from splitting the money into two bonds, one in each name, to minimise the tax payable on the interest. 

How would we benefit from splitting it in to both our names?

MWT

AircraftHandler said:

Petriix said:

You're objectively better putting the money in the 1 year 6.2% bond and then paying a chunk off the mortgage next year. At 2.6% you're profiting from not paying it back yet.

When you say 'we' you might also benefit from splitting the money into two bonds, one in each name, to minimise the tax payable on the interest. 

How would we benefit from splitting it in to both our names?

You both get an individual tax allowance for interest earned, how much depends on your income tax bracket:

https://www.moneysavingexpert.com/savings/personal-savings-allowance/

Holding the funds in a joint account has the same effect...

AircraftHandler

My wife only works part time and is on maternity leave, so her tax is non existent at the moment. 

Yorkie1

AircraftHandler said:

My wife only works part time and is on maternity leave, so her tax is non existent at the moment. 

If you or she took out a 1 year fixed product, then the interest would be paid in the next tax year, when your wife's tax position may be different if she has returned to work from mat leave by then, of course.