To be mortgage free or...?

Dale_02 · 17 July 2019 at 9:42PM

Hi all,

Wasn't sure where to post this, so sorry if it's in the wrong place!

I'm looking for some advice on what to do!

Long story short - Partner had an illness, we had critical illness cover - Partner is ok now, thankfully!
Claim successful and payment has left us pondering!
The payment is a very large sum of money - Basically the same amount (give or take a thousand or two in our favour).

So, where do we go next is my question?

Only a year ago we took out a 5 year fixed mortgage.
Do we look to pay the mortgage off ASAP, or would it be a better idea to stick a large sum of money into s savings account until the 5 year fixed is coming to an end and look at our position then? (This is the idea we have!)

Any advice welcome. We're a little lost... Which is strange, I'd always thought with a large sum of money I'd be out spending it :rotfl:

Btw - We still have about 30 years left on our current mortgage!

MovingForwards · 17 July 2019 at 10:08PM

How much is your early repayment charge if you pay your mortgage off in full now?

If it amounts to more than you would make in interest on your savings, and the amount you would save on mortgage interest, then pay it off.

Alternatively, overpay each year for the next four years.

Put the relevant overpayment into a fixed rate bond for 1, 2, 3 years. Each time a bond matures use it to make the overpayment; you just have to decide whether you want the interest paid into the bond or to a separate account.

Put most of the remainder into a fixed rate bond for 3 years, let it mature then drop it into another one for a year

Keep a pot of money eg 5k in an easy access account which pays interest.

That's as long as you know your partner will be fine and able to work for the next four years.

beanielou · 17 July 2019 at 10:35PM

Also you need to consider if you would be tempted to dip into the money.
Glad that your partner is now ok

Dale_02 · 17 July 2019 at 10:35PM

This is what worrys me... i have no idea about Bonds nor do I know anything about our mortgage early repayment charges!

Before all of this, I just paid the mortgage like everyone lol.

Dale_02 · 17 July 2019 at 10:48PM

beanielou wrote: »

Also you need to consider if you would be tempted to dip into the money.
Glad that your partner is now ok

We both work and have enough money to keep us going. We pay for everything ourselves so I don't think we'd be tempted to dip into the money unless necessary - House repairs that we can't afford from our current savings for example.

We have toyed with the idea of sticking about 85-90% of the money into a savings account and using the rest to renovate our home.

Thanks for the well wishes guys.

dano17439 · 18 July 2019 at 9:43AM

Ask the question why did you take out the critical illness policy in the first place? I bet it was to pay off your mortgage if something bad happened?

Better the devil you know....I would pay it off. This way you know you have security for life if anything else happened like this again

Dale_02 · 18 July 2019 at 1:48PM

dano17439 wrote: »

Ask the question why did you take out the critical illness policy in the first place? I bet it was to pay off your mortgage if something bad happened?

Better the devil you know....I would pay it off. This way you know you have security for life if anything else happened like this again

This is very good advice, and you're right, it was taken out incase anything happened we could pay the mortgage.

I think we're pretty much going to put a big chunk to once side, let it gain interest and pay the mortgage off when our renewal is due in 4 years time.

Where to put it, is the question.
We ideally want it somewhere we can access it if required (3 years until the missus is "in the clear" and as it stands has a low, but higher than normal risk of it returning).
So if anything was to happen during this time we can get the money. But we don't want it somewhere we can just make payments from it now and again - If you get what I mean!

That will still leave us with a nice amount to spend on the house and have a little family holiday, our first one as a family of 3. The little one is only 6 months and I think the missus deserves a treat after what she went through :T:beer:

MovingForwards · 18 July 2019 at 2:15PM

https://uk.virginmoney.com/savings/find/results/online

These are fixed rate bonds - stick money in, earn interest and it matures 1, 2 years later etc

MovingForwards · 18 July 2019 at 2:17PM

https://uk.virginmoney.com/savings/find/results/online

These are limited withdrawal accounts, stick money in, earn interest and you can only withdraw a couple of times per calendar year.

The links are just to give you an idea as to what's about

SnazzieJ · 18 July 2019 at 9:17PM

Hi Dale_02 I have been a lurker on these forums forever but thought it was time to reply....

My OH and I are about 3 months ahead of you as we were able to claim critical illness for my OH. Thankfully he is also well and the worst is well and truly over. I found it very overwhelming especially when I saw the amount sitting in our bank account and we didn’t know what to do! It’s hard to talk about it in real life so we only had ourselves to get advice from and we felt clueless!

After receiving the money we contacted financial advisors (3 in total) as they will give you an introductory session for free. They all advised us to pay off the mortgage and the first FA said the banks will not charge you the repayment fee if you are paying it because of a critical illness or death. We rang the bank (we were 3.5years into our 5 year fix) and they said No! When we told the FA he said not to accept that and to keep ringing. We finally got speaking to the mortgage manager who waived the fee. We paid the mortgage that afternoon, just in case he changed his mind!

We chose an IFA (based on that fact he is independent and we both liked him) who is in the process of investing the rest of our money- stocks and shares ISA for both of us. Money into my pension and a general investment account. We also kept some funds that are more accessible and have opened every bank account known to man to get as much interest as possible. This hasn’t happened over night and we have been slowly sorting it.

All 3 FA said to pay all debts off although we didn’t have any.

Paying the mortgage has given us such peace of mind. We are saving the amount we paid on the mortgage- currently into a uni fund so it really hasn’t changed our disposable income but we are happy with that as we don’t want to mad with the money and regret it.

I hope this helps and all the best on your new financial journey.

Dale_02 · 23 July 2019 at 4:54PM

Thank's for all the advice guys.

I think we're set on getting this mortgage paid off, or at least the majority leaving us with a very small mortgage - That can be paid off in just a few years.

This will also leave us with a bit of money to play around with and invest into the house... Nice garden, bit of decorating etc.

Just really not sure on the best way of doing it. We still have 4 years left on our fixed rate mortgage.
It was a 5 year fixed rate over 33 years.
2.59% interest

The paperwork says a 5% charge for paying off the mortgage with some other fee's (Cash back, admin fee's). Totals near to £7000 which is obviously a lot of money!

We're going to get our mortgage advisor (Family friend too) to come over and go through it all. Might be more beneficial to wait the 4 years out letting our money gain interest in a savings account/ISA.

To be mortgage free or...?

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