How to spend incoming lump sum - Overpay mortgage/HTB/CC repayment advice

globberstitch

Morning all, 

I can't find any discussion on Mortgage vs. HTB over the past 4 years so posting for advice. 

I am about to receive a £50,000 lump sum. 

I have credit card debt which is obviously the priority for repayment. But after this has been paid I will have £40,000 to contribute to our property. My questions come in two parts.

Credit card repayments

My credit card debt is spread across multiple cards, all at 0% and maturing at different stages over the next 6ish months. With interest rates as they are, I can't work out if it would be better to:

1. Stick £10k in a savings account (best I'm seeing is approx 4.5%) and earn a small amount of interest over the next 6 months, reduce monthly CC payments to a minimum, and pay these debts off when their 0% interests runs out.
2. Pay off all credit cards now and use the additional monthly funds to save. 

There probably isn't much in it and if it's a moot point please do tell me (massive overthinker here!) 

Mortgage vs Help to Buy Equity Loan

For context, we are 3 years into our HTB equity loan. We had the property valued when we re-mortgaged last year and it had dropped slightly (by about £13k). There is high development in the area I live, however our flat is positioned a stones throw from the train station in a commuter town outside London.
Our intention is to move to a house, preferably before we start paying interest on the HTB equity loan (May 2027) although this is not guaranteed. We also have 2 years left on a fixed mortgage at 4.94% (bleugh) but our financial situation at the time left us no choice but to fix for 3 years at this rate. We are starting to pay £125 extra off our mortgage monthly due to a reduction in our childcare costs.
We have approx 31.5 years left on our mortgage.

So I am curious as to whether we should

1. Over pay our mortgage over the next two years. We can over pay 10% annually without incurring fees (approx £25,000) so I would do this now and put the remaining £15,000 in savings for 12 months and do the same this time next year.
2. Repay approx. 60% of our HTB equity loan. This is based on the valuation from last year. I believe there are solicitors fees attached to repayment(any insight to these would be appreciated as I'm seeing varying costs!) so we would be paying multiple lots of fees to repay the loan at multiple times.

I appreciate that there isn't really any way to know what will happen to our property price over the next 2 years so it's difficult to factor that in to the decision (as HTB repayment is a % of property value not a fixed amount) but I'd be really grateful for any advice. It may all come down to chump change but every penny really does count in this household. 

Exodi

From a Maths perspective, you should seek the highest rate for your money - that doesn't just apply to debt.

So if you're currently paying 0% on CC's, it makes no sense to pay them off now. As you say, put the money to the side in an account paying interest until the deals are up (and make minimum payments throughout).

Likewise, as someone obsessed with numbers, I'm not a fan of overpaying mortgages. It makes sense from an emotional perspective (with vague notions like 'security' or 'freedom' thrown in the mix), but if you were to estimate the average interest rate you might pay over the life of the mortgage, it's unlikely to beat out investing.

Depending on your pension situation, you could also want to use the money to bolster your pension.

Lots to think about.

amnblog

If the value of the property is going nowhere or backwards, the H2B equity is picking up 20% of that risk.

Therefore it makes little sense to pay off the H2B loan (you cannot pay off 60% anyway - 50% or 10)% are the options)

Once you have cleared the credit card (when 0% rate ends) pay as much off as you are allowed without penalty on the mortgage to save 4.95% pa.

Leave enough cash behind to ensure you do not need to build up credit card debt again.