Downsizing on a fix mortgage rate- what do do with 'spare' cash

savesummore

Hi, We are currently in the process of down sizing but due to being on a fixed rate for another approx 2 years at sub 1.5% I want to port the entire mortgage to new property (the mortgage company said we could do that) The move will give us approx £95K 'in our pockets' so to speak but from that approx £5k will be spent on moving, £25K will be kept back to do work on new house and approx £15K can be overpaid to the mortgage without any penalties (otherwise its a 5% penalty charge) and as we have just spent the last 2 years trying to over pay our mortgage i dont want to waste this hard work. Then on 1st Jan 2025 another approx £15K can again be overpaid penalty free against our mortgage. This leaves me with approx £50 ish K 'hanging around' waiting for our fixed deal to be finished so I can pay it off the mortgage. Im abit scared about it........what will i do with it? Split it into ISA's and I dont think I will be subject to tax as its profit from my primary residence? Anyone done anything similar or can offer and suggestions? PS we have no other debt

Mark_d

If I were you I would put the £50k into premium bonds, as the prizes are tax free and you have 100% security for your money.

It beats my why you are overpaying on your mortgage - as this just saves you from paying 1.5% interest on the £15k.  Surely you could find accounts paying a net interest of greater than 1.5%?

penners324

Put it in your pension 

penners324

Mark_d said:

If I were you I would put the £50k into premium bonds, as the prizes are tax free and you have 100% security for your money.

It beats my why you are overpaying on your mortgage - as this just saves you from paying 1.5% interest on the £15k.  Surely you could find accounts paying a net interest of greater than 1.5%?

Wouldn't touch Premium Bonds. Not guaranteed.

ISAs and pensions would be far more valuable in the long run. Pensions especially as you'd get the 25% tax rebate straight into the pension 

Mark_d

penners324 said:

Mark_d said:

If I were you I would put the £50k into premium bonds, as the prizes are tax free and you have 100% security for your money.

It beats my why you are overpaying on your mortgage - as this just saves you from paying 1.5% interest on the £15k.  Surely you could find accounts paying a net interest of greater than 1.5%?

Wouldn't touch Premium Bonds. Not guaranteed.

ISAs and pensions would be far more valuable in the long run. Pensions especially as you'd get the 25% tax rebate straight into the pension 

Actually Premium Bonds are 100% guaranteed.   Check the NS&I website.

S&S ISAs and pensions are long term investments and are unsuitable as the OP wants to repay the mortgage in two years time.

Veteransaver

Not much point overpaying the mortgage whilst it's still on a low rate.
Also, check the mortgage LTV on the downsized property doesn't breach the banks LTV threshold, might impact whether you can port it, or you may need to pay some off, possibly incurring an ERC?

jrawle

Mark_d said:

penners324 said:

Mark_d said:

If I were you I would put the £50k into premium bonds, as the prizes are tax free and you have 100% security for your money.

It beats my why you are overpaying on your mortgage - as this just saves you from paying 1.5% interest on the £15k.  Surely you could find accounts paying a net interest of greater than 1.5%?

Wouldn't touch Premium Bonds. Not guaranteed.

ISAs and pensions would be far more valuable in the long run. Pensions especially as you'd get the 25% tax rebate straight into the pension 

Actually Premium Bonds are 100% guaranteed.   Check the NS&I website.

S&S ISAs and pensions are long term investments and are unsuitable as the OP wants to repay the mortgage in two years time.

The previous poster presumably means that the prizes are not guaranteed, rather than that the capital is at risk. According to this site's article on Premium Bonds, £50k is likely to give a return of 3.9% per year with average luck. The top easy access savings accounts pay around 5% but are taxable, so whether this beats Premium Bonds depends on the OP's tax status. Some money could also go into an ISA at a similar rate to avoid tax.

savesummore

Hello all many thanks for taking the time to reply. I hadnt considered premium bonds so thats a useful thought. pension is out unfortunately as I do need to keep the money 'liquid'

MWT

I'm still struggling with the logic of making any overpayments at all before the fixed period ends?

With the fixed interest as low as it is, it would make more sense to just keep the money in a savings account earning interest at a higher rate than the mortgage, and then make a larger repayment once the fixed period ends...

Bluebell1000

I agree, overpayments only make sense if you have higher mortgage interest than savings interest rates. I'd probably go for a fixed rate cash ISA x 2 assuming you have a partner (to use up both allowances this year). Then maybe a 1 year fixed cash saver with the rest, again split between two of you to reduce potential tax, then filling up the ISA allowance with that money next year. 

Archerychick

I absolutely wouldn’t be overpaying on that mortgage, since you could earn more in interest with it in a savings account (this is what we are doing at the moment). 

I would make use of your ISA allowance, if there are two of you, that’s £40k. Then you could put the rest either into premium bonds as that’s tax free on any winnings, or put it into a normal savings account (perhaps a fix is a good idea since rates will be dropping), but I’d probably want to keep an eye on PSA to ensure you don’t end up paying tax on any interest if you go over the £1k allowance (this is where the premium bonds come in)