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  • FIRST POST
    • WillChronology
    • By WillChronology 14th Sep 18, 7:53 PM
    • 13Posts
    • 2Thanks
    WillChronology
    What to do with 50k inheritance
    • #1
    • 14th Sep 18, 7:53 PM
    What to do with 50k inheritance 14th Sep 18 at 7:53 PM
    Hi there - I'm a long time lurker, first timer poster.

    I recently inherited 50k and I am wondering whether you could give me some advice about what you would do with the inheritance if you were in my shoes.

    Here's my situation:
    - I am a teacher in my 30s
    - My wife is also a teacher
    - We have a 340k mortgage, the largest component of which will be paid off when I am 60
    - We have no other debts
    - Prior to the inheritance, we each had about 10k in savings (in ISAs paying 0.75%)
    - Due to recent pay rises, we can save about 1,000 per month and have been using some of this to overpay the mortgage
    - We have no children but might do in the future

    Options I have considered:
    - Using a chunk of it to chip away at our large mortgage
    - Putting the bulk of it in a 1-year fixed rate savings account (at about 2%)
    - Putting the bulk of it in an easy-access savings account (at about 1.35%)

    What I have done already:
    - Setup a regular saving (250 per month) paying 5% interest

    I know I can earn up to 1,000 per year in interest tax free. I can reach this limit with some of the options above.

    Is there anything else I should consider, e.g. anything I may have overlooked? Any advice at all would be greatly appreciated, as I want to consider all (good) options.

    Many thanks for your help.
Page 1
    • FatherAbraham
    • By FatherAbraham 14th Sep 18, 8:24 PM
    • 914 Posts
    • 679 Thanks
    FatherAbraham
    • #2
    • 14th Sep 18, 8:24 PM
    • #2
    • 14th Sep 18, 8:24 PM
    Hi there - I'm a long time lurker, first timer poster.

    I recently inherited 50k and I am wondering whether you could give me some advice about what you would do with the inheritance if you were in my shoes.

    Here's my situation:
    - I am a teacher in my 30s
    - My wife is also a teacher
    - We have a 340k mortgage, the largest component of which will be paid off when I am 60
    - We have no other debts
    - Prior to the inheritance, we each had about 10k in savings (in ISAs paying 0.75%)
    - Due to recent pay rises, we can save about 1,000 per month and have been using some of this to overpay the mortgage
    - We have no children but might do in the future

    Options I have considered:
    - Using a chunk of it to chip away at our large mortgage
    - Putting the bulk of it in a 1-year fixed rate savings account (at about 2%)
    - Putting the bulk of it in an easy-access savings account (at about 1.35%)

    What I have done already:
    - Setup a regular saving (250 per month) paying 5% interest

    I know I can earn up to 1,000 per year in interest tax free. I can reach this limit with some of the options above.

    Is there anything else I should consider, e.g. anything I may have overlooked? Any advice at all would be greatly appreciated, as I want to consider all (good) options.

    Many thanks for your help.
    Originally posted by WillChronology
    What is your mortgage rate?
    • WillChronology
    • By WillChronology 14th Sep 18, 8:35 PM
    • 13 Posts
    • 2 Thanks
    WillChronology
    • #3
    • 14th Sep 18, 8:35 PM
    • #3
    • 14th Sep 18, 8:35 PM
    We have three mortgages:
    1) 80k tracking at 1% above base rate (17 years remaining)
    2) 80k fixed for 4 years at 1.89% (17 years remaining)
    3) 180k fixed for 9 years at 2.59% (24 years remaining)

    Note: I may be off by 0.1% - 0.2% on each of the mortgages rates, and the years might be out by 1 year.
    • FatherAbraham
    • By FatherAbraham 14th Sep 18, 8:45 PM
    • 914 Posts
    • 679 Thanks
    FatherAbraham
    • #4
    • 14th Sep 18, 8:45 PM
    • #4
    • 14th Sep 18, 8:45 PM
    We have three mortgages:
    1) 80k tracking at 1% above base rate (17 years remaining)
    2) 80k fixed for 4 years at 1.89% (17 years remaining)
    3) 180k fixed for 9 years at 2.59% (24 years remaining)

    Note: I may be off by 0.1% - 0.2% on each of the mortgages rates, and the years might be out by 1 year.
    Originally posted by WillChronology
    You might enjoy the Accumulator's musings on repaying debt versus investing: http://monevator.com/investing-versus-mortgage-risk/

    Is teaching a job with a lower-than-average risk of redundancy? Are you taking advantage of the excellent pension scheme?

    Is there a specific reason why you haven't yet considered investing any of the windfall in share-based assets for long-term growth?
    • kidmugsy
    • By kidmugsy 14th Sep 18, 8:47 PM
    • 12,059 Posts
    • 8,508 Thanks
    kidmugsy
    • #5
    • 14th Sep 18, 8:47 PM
    • #5
    • 14th Sep 18, 8:47 PM
    I recently inherited 50k and I am wondering whether you could give me some advice about what you would do with the inheritance if you were in my shoes.

    - Prior to the inheritance, we each had about 10k in savings (in ISAs paying 0.75%)
    - Due to recent pay rises, we can save about 1,000 per month and have been using some of this to overpay the mortgage
    - We have no children but might do in the future

    Options I have considered:
    - Using a chunk of it to chip away at our large mortgage
    - Putting the bulk of it in a 1-year fixed rate savings account (at about 2%)
    - Putting the bulk of it in an easy-access savings account (at about 1.35%)

    What I have done already:
    - Setup a regular saving (250 per month) paying 5% interest

    I know I can earn up to 1,000 per year in interest tax free. I can reach this limit with some of the options above.
    Originally posted by WillChronology
    (i) I'd spread the 1k p.m. over four 5% regular savers - two each.

    (ii) I'd withdraw the money from the 0.75% ISAs and use it to earn more interest e.g. the interest-paying current accounts at Nationwide or Tesco or (if you feel daring) TSB.

    (iii) If you are then both pressing on the 1k p.a. allowance I'd consider Premium Bonds - a tax-free nominal 1.4% p.a., consisting of around 1.25% on small monthly winnings (roughly regular if you have 50k in PBs) plus a tiny chance of a big prize.

    These suggestions are made on the basis that you want cash available in case babies come along. If you think you'd like to invest on a longer view you could each consider transferring 4k p.a. from your ISAs into LISAs. Since you already own a house you'd be using LISAs for retirement provision, or for financial help for your children as young adults, or towards paying off the mortgage at 60.

    Have you got your insurances sorted out? No doubt the TPS supplies some effective insurance, but would you want more in the case of babies?

    http://monevator.com/life-insurance-and-protection-a-primer-or-why-you-should-buy-renewable-term-life-cover-most-of-the-time/

    http://monevator.com/do-you-need-income-protection-insurance/

    http://monevator.com/family-income-benefit-the-forgotten-policy/
    Free the dunston one next time too.
    • WillChronology
    • By WillChronology 14th Sep 18, 8:51 PM
    • 13 Posts
    • 2 Thanks
    WillChronology
    • #6
    • 14th Sep 18, 8:51 PM
    • #6
    • 14th Sep 18, 8:51 PM
    You might enjoy the Accumulator's musings on repaying debt versus investing:

    Is teaching a job with a lower-than-average risk of redundancy? Are you taking advantage of the excellent pension scheme?

    Is there a specific reason why you haven't yet considered investing any of the windfall in share-based assets for long-term growth?
    Originally posted by FatherAbraham
    I will give that a read - thank you.

    Yes, low risk of redundancy and excellent pension scheme.

    Long-term investments are an option. However, one complicating factor is that we don't have children but might start a family. Therefore, my wife would potentially go part-time, and I worry that we might regret having the funds locked away long-term. I have not considered stocks and shares.
    • kidmugsy
    • By kidmugsy 14th Sep 18, 8:56 PM
    • 12,059 Posts
    • 8,508 Thanks
    kidmugsy
    • #7
    • 14th Sep 18, 8:56 PM
    • #7
    • 14th Sep 18, 8:56 PM
    We have three mortgages:
    1) 80k tracking at 1% above base rate (17 years remaining)
    2) 80k fixed for 4 years at 1.89% (17 years remaining)
    3) 180k fixed for 9 years at 2.59% (24 years remaining)
    Originally posted by WillChronology
    You could use the annual maturity money from the regular savers to attack mortgage (1). You could save at fixed interest greater than 1.89% for four years to let you attack mortgage (2). Mortgage (3) you presumably will choose to live with. Or are you allowed to overpay it? If so, that would be the one to start with as it's the most expensive.
    Last edited by kidmugsy; 14-09-2018 at 9:33 PM.
    Free the dunston one next time too.
    • WillChronology
    • By WillChronology 14th Sep 18, 9:10 PM
    • 13 Posts
    • 2 Thanks
    WillChronology
    • #8
    • 14th Sep 18, 9:10 PM
    • #8
    • 14th Sep 18, 9:10 PM
    (i) I'd spread the 1k p.m. over four 5% regular savers - two each.

    (ii) I'd withdraw the money from the 0.75% ISAs and use it to earn more interest e.g. the interest-paying current accounts at Nationwide or Tesco or (if you feel daring) TSB.

    (iii) If you are then both pressing on the 1k p.a. allowance I'd consider Premium Bonds - a tax-free nominal 1.4% p.a., consisting of around 1.25% on small monthly winnings (roughly regular if you have 50k in PBs) plus a tiny chance of a big prize.

    These suggestions are made on the basis that you want cash available in case babies come along. If you think you'd like to invest on a longer view you could each consider transferring 4k p.a. from your ISAs into LISAs. Since you already own a house you'd be using LISAs for retirement provision, or for financial help for your children as young adults, or towards paying off the mortgage at 60.

    Have you got your insurances sorted out? No doubt the TPS supplies some effective insurance, but would you want more in the case of babies?
    Originally posted by kidmugsy
    Spreading the 1k per month of savings over 4 x 5% regular savers is an excellent idea.

    Withdrawing money from our ISA and putting it elsewhere is advice I have been given elsewhere and I agree makes sense, as long as I can access it (I don't want to lock away all of our savings/inheritance, as we might need some of it).

    Our insurances are being sorted. We have some already but want more cover.
    • WillChronology
    • By WillChronology 14th Sep 18, 9:11 PM
    • 13 Posts
    • 2 Thanks
    WillChronology
    • #9
    • 14th Sep 18, 9:11 PM
    • #9
    • 14th Sep 18, 9:11 PM
    You could use the annual maturity money from the regular savers to attack mortgage (1). You could save at fixed interest greater than 1.89% for four years to let you attack mortgage (2). Mortgage (3) you presumably will choose to live with.
    Originally posted by kidmugsy
    Actually, we have been overpaying mortgage 3, since it has the highest rate.

    If anything, I though mortgage 1 is the one to keep.
    • kidmugsy
    • By kidmugsy 14th Sep 18, 9:38 PM
    • 12,059 Posts
    • 8,508 Thanks
    kidmugsy
    Actually, we have been overpaying mortgage 3, since it has the highest rate.

    If anything, I though mortgage 1 is the one to keep.
    Originally posted by WillChronology
    Oops, I've just seen this post after I edited mine. You are bang on; overpayment gives you a tax-free 2.6% return. Are you limited to monthly overpayment or can you knock off a big chunk annually?

    One way to organise things would be to see whether anyone still offers a "flexible" mortgage. We had one; it was wonderful. Feeling flush? Overpay. Feeling skint? Borrow back.
    Free the dunston one next time too.
    • WillChronology
    • By WillChronology 14th Sep 18, 9:52 PM
    • 13 Posts
    • 2 Thanks
    WillChronology
    Oops, I've just seen this post after I edited mine. You are bang on; overpayment gives you a tax-free 2.6% return. Are you limited to monthly overpayment or can you knock off a big chunk annually?

    One way to organise things would be to see whether anyone still offers a "flexible" mortgage. We had one; it was wonderful. Feeling flush? Overpay. Feeling skint? Borrow back.
    Originally posted by kidmugsy
    I can overpay by up to 10% per year, so I could overpay 18k this year if I wanted to, without charge.

    Perhaps my best bet is to put the 50k in savings (a couple of regular savers and maybe a 50/50 combination of fixed 1 year savings and an easy-access savings account, so we can access about half of the funds if we need it), which would get me close to my 1k per year in interest (tax free).

    And then use my monthly savings to overpay the 2.6% mortgage by as much as possible each month?

    That might be the best 'compromise' between all my options?
    • Zero Sum
    • By Zero Sum 14th Sep 18, 9:53 PM
    • 553 Posts
    • 445 Thanks
    Zero Sum
    We have three mortgages:
    1) 80k tracking at 1% above base rate (17 years remaining)
    2) 80k fixed for 4 years at 1.89% (17 years remaining)
    3) 180k fixed for 9 years at 2.59% (24 years remaining)

    Note: I may be off by 0.1% - 0.2% on each of the mortgages rates, and the years might be out by 1 year.
    Originally posted by WillChronology
    If you're considering paying down mortgage, youd be better off getting a 5 year fix at 2.7% then using interest to over pay. Of course also maxing out as many high interest current accounts & regular savers as possible.
    • WillChronology
    • By WillChronology 14th Sep 18, 9:58 PM
    • 13 Posts
    • 2 Thanks
    WillChronology
    If you're considering paying down mortgage, youd be better off getting a 5 year fix at 2.7% then using interest to over pay.
    Originally posted by Zero Sum
    Good point.

    Although, I anticipate savings rates could rise, so fixing for 5 years might be regretful.
    • Zero Sum
    • By Zero Sum 14th Sep 18, 10:09 PM
    • 553 Posts
    • 445 Thanks
    Zero Sum
    Good point.

    Although, I anticipate savings rates could rise, so fixing for 5 years might be regretful.
    Originally posted by WillChronology
    The last increase of 0.25% only realy lead savings rates to increase by 0.05% so no gaurentees. But at least you're getting more than mortgage. You could of course stagger it a bit. Stick a bit in for 2 years at about 2.2% a bit at 3 years & a bit at 4 & 5 years. Do it that the average rate is pretty close to your 2.59% then if they start going up, in 2 years time your 2 year bond becomes a 5 year bond earning 3%+ then repeat each year.
    • Zorillo
    • By Zorillo 14th Sep 18, 10:11 PM
    • 427 Posts
    • 280 Thanks
    Zorillo
    If savings rates rise, then mortgage rates will too, and you're 9 year fix might look a lot better than your 1% above base rate currently does.
    • WillChronology
    • By WillChronology 14th Sep 18, 10:16 PM
    • 13 Posts
    • 2 Thanks
    WillChronology
    If savings rates rise, then mortgage rates will too, and you're 9 year fix might look a lot better than your 1% above base rate currently does.
    Originally posted by Zorillo
    Yes, you're right. That's why we set it up that way - so we aren't putting all of our eggs into one basket. I know by fixing for 9 (originally 10) years we're paying a higher rate, but at least it gives us some security if rates go up.
    • WillChronology
    • By WillChronology 14th Sep 18, 10:17 PM
    • 13 Posts
    • 2 Thanks
    WillChronology
    The last increase of 0.25% only realy lead savings rates to increase by 0.05% so no gaurentees. But at least you're getting more than mortgage. You could of course stagger it a bit. Stick a bit in for 2 years at about 2.2% a bit at 3 years & a bit at 4 & 5 years. Do it that the average rate is pretty close to your 2.59% then if they start going up, in 2 years time your 2 year bond becomes a 5 year bond earning 3%+ then repeat each year.
    Originally posted by Zero Sum
    This is why I came here, for good advice like this. For some reason I wouldn't have thought of that.
    • FatherAbraham
    • By FatherAbraham 14th Sep 18, 10:28 PM
    • 914 Posts
    • 679 Thanks
    FatherAbraham
    I will give that a read - thank you.

    Yes, low risk of redundancy and excellent pension scheme.

    Long-term investments are an option. However, one complicating factor is that we don't have children but might start a family. Therefore, my wife would potentially go part-time, and I worry that we might regret having the funds locked away long-term. I have not considered stocks and shares.
    Originally posted by WillChronology
    But if you don't want to lock funds away long term, why would you repay any the mortgage?

    Better to invest that money in mid-term (for example, peer-to-peer loans) or longer-term (equities) assets, surely? If you don't need to withdraw, then you'll probably make a decent return. If you do need to withdraw, then most of your capital will probably be available.

    If you repay/overpay the mortgage with some capital, then the capital is gone, possibly irrevocably.
    • WillChronology
    • By WillChronology 14th Sep 18, 10:32 PM
    • 13 Posts
    • 2 Thanks
    WillChronology
    But if you don't want to lock funds away long term, why would you repay any the mortgage?

    Better to invest that money in mid-term (for example, peer-to-peer loans) or longer-term (equities) assets, surely? If you don't need to withdraw, then you'll probably make a decent return. If you do need to withdraw, then most of your capital will probably be available.

    If you repay/overpay the mortgage with some capital, then the capital is gone, possibly irrevocably.
    Originally posted by FatherAbraham
    I'd be comfortable using some of the inheritance to overpay the mortgage, e.g. 20k, if it was the right thing to do financially. I wouldn't want to put all 50k into the mortgage though, as I'd like the possibility of accessing the funds, potentially.

    Overpaying the mortgage so that I can have it paid off before I am 60 is an appealing proposition.

    What rate of return might you expect with longer-term assets? Or is it impossible to say?
    • Thrugelmir
    • By Thrugelmir 14th Sep 18, 11:33 PM
    • 61,016 Posts
    • 54,212 Thanks
    Thrugelmir
    What rate of return might you expect with longer-term assets? Or is it impossible to say?
    Originally posted by WillChronology
    There's no guarantees. Though investments need to be viewed long term, i.e. 10 years or longer. With a 340k mortgage I'd personally like to see that reduce quickly. Anything you overpay is a guaranteed return. As you could still have a mortgage balance as and when interest rates rise in the future.
    Financial disasters happen when the last person who can remember what went wrong last time has left the building.
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