nice dilemna - about to get a mortgage...

nethesi

Hi All,

OH and I are about to get a large mortgage (just under 3x our combined salaries!) but this is the house we plan to have kids in, so it's worth it. We've also got what I hope is a bargain the surveyor certainly seemed to think so...

... anyway we had a mortgage all agreed and had then worked out a plan of how much we needed to save in the next couple of years and as we also will need to buy quite a lot of furniture, although the plan is to freecycle and look second hand (going from a 1 bed rented flat to a 4 bed house!), and do a few home improvements. Now out of the blue my Granddad who never spends money on himself has sent us a cheque for co-incidentally half the amount that I wanted to have in available savings in 2 years time along with a lovely letter about how he struggled in his first house, and there wasn't anyone in the family who had any money, but now he has some to spare, so wanted to help us. My initial reaction was to reduce the amount of teh mortgage with 2/3 s of it and use the remaining 1/3 to go towards new loft insulation and cavity wall insulation (have had a look on British Gas for an initial idea of prices) along with possibly a couple of items of furniture from the house clearance place!

Doing this would make our mortgage payments cheaper by £13 a month and we'd have a little bit more savings left (I'm a natural worrier and I've never not had 3 months worth of savings before so am a bit scared!). Alternatively we could buy nicer furniture or just put it all on the mortgage.

What do you all think? Any comments or advice welcome.

jackomdj

Another acountant here - so excuse the spelling!

Anyway I would probably go with reducing the mortgage value, but I would also make sure I paid the amount I originally thought I was going to be paying, ie make monthly overpayments & I would round it to £15 (or more if you can afford it). Doing this you will be paying £15 (or whatever) off the capital each month so even your standard payments are overpaying (as effectively you will be building up less interest each month).

What a lovely Grandad you have.

Good luck in whatever you decide.

Nicky

nethesi

Only just saw your reply, that's a good plan, will help towards making us mortgage free by 50 ... I guess that's a reason to be cheerful!

We've decided also to keep back a bit of our own money in case the boiler explodes! And overpay each month with the proviso that we'll withdraw it in an emergency (job loss, pregnancy before we expect it:o etc!)

Trying_to_be_good

Before you book someone to do your energy-saving work (cavity wall, loft insulation etc) check with your local council - many will pay grants towards this sort of work, and you don't necessarily need to be on benefits to claim. SOme pay to anyone willing to have the work done, up to 100% of the costs!

nethesi

Thanks for the tip - I've just had a look and my local council will at the least give us £100 of our council tax! Not bad.... I'll look into it more once we've moved, but that's at least a start...

Yes I'm really lucky with my Granddad he has always been there for us, just makes me sad that he doesn't think of things that will help him he's a very proud man, my Grandma died last autumn after years of a severe illness, with my Granddad as her carer but he refused to move to be closer to other family members. On a lighter note It recently took us 6 months to persuade him to buy a new TV!

jamesd

Is the mortgage interest rate higher or lower than the best cash ISA rate? If it's lower you make more money by keeping it available for emergencies in the ISA than by getting a smaller mortgage.

snarffie

jamesd wrote: »

Is the mortgage interest rate higher or lower than the best cash ISA rate? If it's lower you make more money by keeping it available for emergencies in the ISA than by getting a smaller mortgage.

This is a very good point.

If you act quickly, you could chuck £3000 into a cash ISA BEFORE April 5th. On April 5th, you could chuck another £3600 into a second cash ISA.

If you partner does the same, you would have a combined £13200 in ISAs, which SHOULD be earning more interest than you would be paying on a mortgage.

The cash in the ISA (and interest) will be tax free.

Put any surplus into your mortgage to reduce the payments.

(I don't know how much your grandad gave you, so getting in before 5th of April may be moot)

nethesi

Hi Guys,

That's what I decided to do in the end - although we haven't got £13,200 spare yet - I have the savings bug though so am planning to get nearer there over the next year or so!

Thanks for all the advice...

angelavdavis

How lovely for you - what a great gesture of your Grandad.

I will add a sobering thought (sorry) as I am not sure how old Grandad is or how good his health is, plus not sure how much he has gifted you.

Another benefit of putting the money away is that Grandad can gift you £3000 per year tax free (ie should Grandad die within 7 years of gifting the money, and it exceeds 7 x £3000 you will have to pay inheritance tax on it).

I suggest you keep any bank statements that show the date when Grandad gave you the money in case the worst happens for the next 7 years.

So, saving it in an ISA has another benefit in case anything awful happens - as I certainly hope it doesn't to such a lovely man! Best wishes and good health to Grandad!!!