Overpay mortgage or save dilemma

Lifes_Grand_Plan

Hi everyone,

My wife and I are shortly to receive £100k from an inheritance and are unsure what to do with it.

We have £191k on the mortgage with a current remaining term of 17 years and current fix for next 2 years (originally 5) is 3.28%. We overpay £200 every month on the mortgage already but wondered whether to drop the above lump onto it too which would shorten the term from 17 years to 6!

However I know 3.28% is a decent rate and saving / investment would be better, but because we're both earning over the 40% threshold, but salary sacrifice to get it under the threshold, any interest would be taxable, AND would push us back into 40% plus lose child benefit.

We already invest into ETFs via ISAS but only about £6k a year so could put a further £34k in next year to max them, but that would still leave the remainder of the lump. And with investing being for the long term, we wouldn't necessarily want to lock it away as we do want to get the mortgage done and dusted soon ish.

Anyone got any suggestions / bright ideas / opinions on what you would do?

BTW the inheritance is a chunk over £100k and that's the fun money we'll either use for holidays / home improvements etc.

TIA for all replies.

[Deleted User]

If it was me I would pay off the mortgage as quick as possible as a priority after having a decent emergency fund, because you might not always have a job. But also it is worth thinking about the fees you would pay to do it before the mortgage has come out of the fixed period and whether there are penalties, it might cost you to overpay the mortgage more then would be productive doing it. Also having the mortgage paid off sooner means you could save more in the future anyhow as you wouldn't be paying your mortgage. Also if you did decide to save I would be tempted to put £50K into premium bonds for a chance to win, my mum does this and she normally wins something. It depends a bit on luck but the more you have the more likley you are to win. Enjoy the inheritence and make good use of it. BeeXX

Lifes_Grand_Plan

https://forums.moneysavingexpert.com/discussion/comment/81928542#Comment_81928542

Thanks. I don't believe there is any cost to overpaying the mortgage as long as I don't pay it off entirely within the fixed rate period (which I wouldn't).

Good idea on the premium bonds, i'd not thought of that, although MSE calculator suggests with average luck its an effective 3.6% payback so only a fraction more than the mortgage rate.

ellenvan

I agree with Crazy bee , I would put £50 k into premium bonds as it's not taxable.

Check any redemption fees for mortgage.

If no redemption fees pay the other £50 k off the mortgage. If fees put it into an ISA until no fees.

Lifes_Grand_Plan

https://forums.moneysavingexpert.com/discussion/comment/81928582#Comment_81928582

Thanks! Having done the calcs, £50k in PB would return 3.2% with average luck, so I can't see why that would be a better option than overpaying the mortgage (no fees) for a guaranteed "return" of 3.27%?

I know I could win more with PBs, but I could also win less too.

Is there some calculation I don't know about here?

Woodstok2000

https://forums.moneysavingexpert.com/discussion/comment/81928595#Comment_81928595

After 1 year you could move £40k more back from premium bonds into ISAs at a higher rate. Once you've put the money on your mortgage, its gone.

Also note that if you're currently under the 40% tax band (£50k), you'd need at least 10% interest to put you into the bracket where you start losing child benefit (tapers by 1% per £200 over £60k earnings)

ellenvan

The only reason I suggested premium bonds is I thought you then had more options going forward. Once you have overpaid the mortgage it's difficult to re borrow.

Also have you checked you can overpay the mortgage without penalty? Sometimes there is a maximum of 10% that can be overpaid without penalty.