Paying into mortgage vs enjoying life a bit more...

joanna3293

We are due to re-mortgage in January, we have settled on a 2 yr fixed at 4.29% over a 6 year team.  We have £76,000 left on the mortgage.  This year my husband lost his (very stressful) job at 61 and has been unable to get back into the industry. He has now taken a job in a supermarket (much less money but he is much happier).  I am 51 and earning £38,000 and hoping to work at least until 65 if possible.  We have just been gifted £50,000 from a family member.  Our instinct is to chuck it into the mortgage once it ends in January and before we start a new one.  Would an alternative be to put the £50,000 in a savings account and pay the mortgage from that account?  Thus giving us more flexibility with the money and earning interest?  We have had a very, very stressful year and have three kids at uni, it would make us beyond happy to be able to treat them every now and again, money in the bank would allow for that.  What is the sensible answer and what would you do...?  Would really appreciate some balanced opinions, thank you for your time.

jackieblack

Assuming there is an ERC for paying off a lump sum of the size, I'd probably put half in a savings account, hopefully earning at least/equal to the 4.29% interest rate being charged on the mortgage, and use the other half to treat yourselves/your family. 

(This might not the most financially advantageous thing, but there is more to life...)

joanna3293

thank you, that does sound like a nice compromise.  We can change mortgage without any charges from January but Ive no idea how it works if we want to pay a lump before we sign up to the next mortgage.  Will need to look into that. Yes, sometimes there is more to life :-)  thank you

Technosaurus

Hi Joanna,

Not quite with your numbers but we had a similar dilemma at last remortgage time. You could 'overpay' as much as you want at the point of remortgaging without any fees, but it had to be done all on 'remortgage day' if you see what I mean (wasn't quite all on the exact same day but we had to transfer the cash to solicitors, prove funds etc, then they paid it off when we transferred from one mortgage to the other you get the idea).

We had also just had a five figure inheritance through and decided to put it all into the mortgage. We are younger and also had savings elsewhere, but the savings rates were so poor back then (5 years ago) that there was no point keeping it.

In hindsight I'd have probably kept at least £10k in savings "just in case" something happened. It never did but we did feel a bit exposed for a couple of years without any sort of emergency pot. Thankfully no emergency happened and we were able to save up again ,but if I did it again I'd do it that way. Especially nowadays where you can get a little bit better savings rates, it just seems to make life a bit more comfortable.

joanna3293

That seems good advice, we've never managed to have any 'just in case' savings so i think that would be a really nice feeling at this stage.  Interesting about overpaying on mortgage day, we will have a chat with our mortgage broker, thank you very much

Jemma01

To be honest, with your finances (salary, and your husband's low paid job) and age, I'd prioritise paying off the mortgage and reducing the likelihood of reaching 65 with a mortgage on my head. You too may like to rest from working, that may come earlier if things change with your health.

76k is a lot of money for the little income you both have. I'd rather the sense of security that I won't be homeless at 70.

jackieblack

Jemma01 said:

To be honest, with your finances (salary, and your husband's low paid job) and age, I'd prioritise paying off the mortgage and reducing the likelihood of reaching 65 with a mortgage on my head. You too may like to rest from working, that may come earlier if things change with your health.

76k is a lot of money for the little income you both have. I'd rather the sense of security that I won't be homeless at 70.

I agree with the security around paying off the mortgage, but retirement/old age isn’t guaranteed for any of us and the opportunity to make memories with children approaching independence/adulthood may not come around again very often, if for no other reason than trying to synchronise annual leave once they are working is nigh on impossible.

There is also likely to be an opportunity to overpay the mortgage once the children leave uni (assuming, like most parents, OP is supporting the children financially while they are studying).  

400ixl

I'd do a mix.

Stick £10k in a savings account, pay £40k off the mortgage, but carry on paying the same amount each month to over pay and get rid of the last of the mortgage quicker.

The other options of course are:
Pay the £50k off the mortgage, take the lower payments and use the difference for the spending money
Pay the £50k off the mortgage, keep paying the same and get rid of the mortgage even quicker without the spending money

BikingBud

Luck you

I feel a split is the best solution, reduce the debt and have some fun, in the same manner that saving a portion of any pay rise pays dividends in the long run.

What was the message from the benevolent family member were they hoping you would do something specific if not how might they share your joy after you spend it?

Please do just allow it to disappear in day-to-day living.

joanna3293

Thanks so much for all the comments, it really helped.  We've decided to put £10,000 into savings and chuck £40,000 into the mortgage, that will allow us the odd treat and also less stress on the monthly mortgage payment.  Benevolent family member has no opinions on how we spend it, which is really very lovely!

BikingBud

joanna3293 said:

Thanks so much for all the comments, it really helped.  We've decided to put £10,000 into savings and chuck £40,000 into the mortgage, that will allow us the odd treat and also less stress on the monthly mortgage payment.  Benevolent family member has no opinions on how we spend it, which is really very lovely!

Win win👍👍👍