[Closed] Another money thread - inheritance...

Given how interest rates are you will be better off clearing the mortgage and enjoying the savings there than you will be stashing the money and slowly and sensibly frittering it away. For what reason(s) do you think you'll not feel any better off not having the mortgage go out each month?

The house is then yours and should you choose you could release equity from it in the future either by downsizing or taking out an equity release loan (having taken suitable financial advice of course) and you are safe in the knowledge every brick and gram of mortar is yours in the meantime.

Would it be posssible, sensible to pay off a large chunk of the mortgage, leaving you with a decent savings pot and/or a shorter term to finish the mortgage, or much reduced payments over the current 8 years?

I'd clear the mortgage. Should life throw you a curve ball or world goes tits up again you'll have the security in knowing you'll always have a roof over your head.
Use the left over few grand for an epic holiday to give you some memories/enjoyment

Your mortgage payments will now be your play money every month to enjoy life with

the plan was just to sell up, move to something smaller and clear the balance.

Is that something that you want to do, or that you're resigned to?

Current mortgage payments are just under £300 a month on a 1.25% above base tracker.

I’d clear the mortgage. Should life throw you a curve ball or world goes tits up again you’ll have the security in knowing you’ll always have a roof over your head.
Use the left over few grand for an epic holiday to give you some memories/enjoyment

Your mortgage payments will now be your play money every month to enjoy life with

This.

Is that something that you want to do, or that you’re resigned to?

We can't stay in our current house as doddery old farts anyway! It's on a steep hill with lots of steps and a terraced garden.

Don't underestimate the feeling of having no mortgage to pay on a monthly basis. It really is liberating.

Saving £300 per month isn't going to change your life really, but a £100k lump sum could presumably?

Out of interest, have you kids who'll inherit off you?

Given how interest rates are you will be better off clearing the mortgage

I'd say the opposite. Given how interest rates are you will be better off not clearing the mortgage as you have a good deal. I'd probably go with 1/3 into pensions (if you are earning the tax man will give you an extra 20%), 1/3 in other savings (maybe S&S isa), and 1/3 on something nice. Obviously not good timing but a camper van, decent holiday, new bike, new car, new kitchen, whatever (several things, not one, that would be excessive). You could shuffle the proportions to suit, pay off a bit of the mortgage if you like, it seems a popular option.

I’d clear the mortgage and all other debt and then depending on how much is left either go on a kick arse holiday or buy decent car/van/motorcycle/camper. Then I’d start chucking the mortgage payments into a pension or similar for as long as was sensible before retirement.

Out of interest, have you kids who’ll inherit off you?

One daughter who's 18.

It's hard to say - if you were to clear the mortgage (or at least a good chunk of it) then you'd have more disposable income to enjoy & maybe need to work less too for the same standard of living... colleague of mine dropped to 3 days pw about 10 years ago (retired last year) and said it was a great balance, when I came back from furlough last year I did the same & could definitely have gotten used to it - as soon I as I can afford to do that I am.

Or put a bit into the mortgage, a bit into savings, obligatory new bike / STW approved 4wd German estate & carry on working as normal... decisions decisions!

I’d say the opposite. Given how interest rates are you will be better off not clearing the mortgage as you have a good deal.

+1.

I'd say that, if you'd prefer to stay in your current place, make sure you keep enough set aside to pay off the 50% interest only at the end of the term.

Do whatever makes you happiest

We’ve not had a great time financially over the last 15 years (my company went tits-up 11 years ago and I ended up going bankrupt).

we’ll never see this amount of money again and we kind of feel we should enjoy it

Got to say, I felt that these two statements sat together in an revealing way...

[STW] how much are you intending on giving to charity?[/STW]

Got to say, I felt that these two statements sat together in an revealing way…

Before we start with the high-horse comments - we've never blown money in a spendthrift way. The company collapsed due to many reasons - and most debt at the time was incurred trying to prop it up and save jobs, not on a foreign holidays and flash cars.

The last holiday abroad we had was back in 2001! Remember it well as we we're in Greece and it was when the Twin Towers were attacked.

One daughter who’s 18.

This maybe changes the 'equation', are you happy that there's a possibility of nothing left?

We've 3 sons, all working and away from home, and we're currently thinking that their inheritance will be the house (and probably nothing else). But it may change, and could be nothing etc.

Personally:

I’d clear the mortgage. Should life throw you a curve ball or world goes tits up again you’ll have the security in knowing you’ll always have a roof over your head.

Pay off the house, buy at least yourself a new bike and maybe do something nice when there are less restrictions towards summer.

Start using the ~£300pcm that used to cover mortgage towards pension/retirement and shorter term treats.

You still have the option to sell the house at a later date.

Set aside enough to pay off the IO part of the mortgage in 8 years time.
Even if you do still decide to sell up and move, it will give you more options having the extra cash on hand.

Treat yourselves to something that makes you happy, whatever that might be.

Invest the rest in pensions.

This maybe changes the ‘equation’, are you happy that there’s a possibility of nothing left?

She would inherit the house and any other assets.

But no one knows if either of us ends up in care any inheritance could be swallowed up.

We're veering towards paying half the mortgage off and keeping the payments at £300 to clear the balance by the time we're 60.

I’d say the opposite. Given how interest rates are you will be better off not clearing the mortgage as you have a good deal.

We had a similar dilemma a few years ago when my mum died. You'll earn sweet FA from saving the money and the mortgage will cost you alot of money to pay off depending on how many years you have left to run, so we paid off, so you have to balance what you think yo'll earn from investing vs how much it will cost you in mortgage interest payments...people are misled by low interest rates, but a small percentage on a large sum of money over several years equates to many tens of thousands of pounds in interest payments until you pay it off, so how long would you have to invest the money for before it earns you tens of thousands of pounds in interest, because only after then will you be benefitting from it?

And in our case it also took away a financial burden about 40% of our take home pay so felt alot richer month to month and for the first time ever I have started to build up a balance in my bank account instead of running it down to may last few quid or even dipping into my overdraft ever month, even before Coronavirus kicked in.

I would 100% pay the mortgage off and then immediately shift the money you were spending on mortgage payments into pension contributions.

Use 1/2 the remaining inheritance to 'fun' and half in a savings account as a buffer.

Don’t underestimate the feeling of having no mortgage to pay on a monthly basis. It really is liberating.

+1

I'd pay off enough to get shot of the 50% interest mortgage and bring your payments down to where they are now (or lower?). The you have a bit ore to invest/enjoy. We are a little further along in a similar position and our FA commented on the low mortgage rates and that invested sums CAN perform better than a mortgage costs. You then have a little extra to over pay/spend/reinvest.

However, as times are what they are and also the reason you inherited may also be a factor in how you are right now, Always keep a little aside for you to enjoy some nice meals, time away, new bike.... It will help your mental health having a bit of extra disposable to help through a stressful time. Does me anyway.

I would pay off the mortgage. It may not be the optimal choice but you really cannot beat the feeling of being debt free.

Before we start with the high-horse comments – we’ve never blown money in a spendthrift way.

I'm not saying you did. I'm just surprised that you were veering towards the C&H option here rather than giving yourself a buffer and reducing the likelihood of future stress.

Having said which, if the last foreign holiday was two decades ago then I could fully understand the desire to splash out a bit.

I think your current plan of splashing a bit, and banking/ mortgaging/investing the rest sounds good.

I think you both need a holiday. Pay the mortgage off and use the payments to save during current restrictions to pay for it. Something to plan to while away the nights 🙂

Yes debt free and something to remind you of the donor. I have a few things I bought with gift money, funnily enough whether it is a 20 quid coffee mug or my beloved touring bike I still think of the gift donor when using them.

Depending on your pensions it may be worthwhile looking at paying some if not all of it into your pensions, you may need to backdate some of it to get the full tax relief, but that would add an extra 20% on top of your inheritance and depending on the type of pensions you have you may be able to access it from 55.

I'll get on the high horse and persue where @TheGeneralist didn't:

But no one knows if either of us ends up in care any inheritance could be swallowed up.

It sounds like you won't pay a financial planner to give you professional advice.

Inheritance planning can sort this out. If you want your daughter to inherit and you want to protect your house from getting swallowed up in care then you need to talk to an inheritance planner. There are mechanisms that can protect your home for her.

And yeah, stuff enjoying yourself. Whilst I hesitate to say paying off the mortgage is a good idea I'd certainly advocate putting it in a higher interest/growth investment that locks it out of your hands for as long as it takes for the interest half of your mortgage comes due.

Do you have an investment that covers your interest only half of the mortgage?

If not, just pay the bloody mortgage off and spend a couple of grand booking a holiday. Pay for proper financial advice when it comes to inheritance planning and be done.

Then take that £300/month - pay 150 into an ISA and the other 150 quid blow up the wall.

Pay off the mortgage. As others have said it's great to be rid of that particular millstone. Also in the event of future financial difficulty you have at least secured the roof over your head.

I would 100% pay the mortgage off and then immediately shift the money you were spending on mortgage payments into pension contributions.

Use 1/2 the remaining inheritance to ‘fun’ and half in a savings account as a buffer.

I think this is very good advice ^^^

Pay off the mortgage. Lucky enough to pay ours off in our late 40s, and it just felt like a huge weight lifted, even though it was relatively small amount monthly

Then do some saving/pension planning with the money that would have been paying the mortgage.

I’d clear the mortgage. Should life throw you a curve ball or world goes tits up again you’ll have the security in knowing you’ll always have a roof over your head.

+1

Nice knowing that whatever happens, you own the house outright.

Pay off mortgage every time. If anything needs doing to the house (essentials to keep it running nice) do that first, and maybe leave a few £k for a couple of nice holidays or a safety net for the future then pay mortgage off with the rest.

You have to remember if your payment per month is maybe £465 and the interest per month is £185 (that’s my figures!) then you aren’t saving £465 each month, it’s £650 a month!

If you're paying interest then you're giving someone else free money. However you slice it, that's less for you.

That said; does this have you be a binary choice? Pay off £70k and go for the socially distanced holiday of a lifetime with the other £6k.

The sensible thing is probably to get some proper financial advice from someone sitting looking at everything you have and what you want to get out of life. That said, I doubt that's what I'd do. They can come up with the spreadsheet answer to life - but the benefits of living mortgage free are subjective, as are comfort of the future upside of a better pension. Given the option today I'd take the mortgage free option. I suspect the financially correct answer is to put it in your pension. I'd also try not to splash cash on "enjoying it" - my experience is the stress reduction of knowing there is a buffer there (or that I can tell my boss to get lost) is worth more that any holiday or camper van would be.

Thanks all.

We are splashing out on a new roof as it's in desparate need of attention - so that's £10k + gone before we start! 🙂

My wife works for a large insurance company and she's just told me one of their advisors she knows will give her some basic advice before taking it to a formal level.

I'm conflicted about the mortgage paydown merits...
We were paying $900 biweekly, making all the extra/over payments we could plus the 10% annual lump sum.
Basically doing what we could to speed up the paydown.
We had the option to empty all our cash savings and clear our mortgage which seemed like a great idea and I agree with those above saying how liberating it is to own your home.
However, whilst the intention was to stick those equivalent payments into other investments, the reality is far from that. The mortgage was a financial requirement, even with low income months we had to make those payments and we made them without dipping deeply into those savings accounts.
Since paying down, any additional investments into other products simply hasn't happened as it's "optional" unlike the mortgage repayments. So, realistically we have missed the opportunity to grow our wealth by some 40k (equivalent mortgage principal payments) in the 2 years since we paid down.
On the positive side, covid income reduction was not stressful like it could have been having to deal with the mortgage payments/deferrals etc.
Perhaps we've had a better quality of life, perhaps we've been subconsciously less stressed..but we still haven't gained financially by making that paydown.
I'm actually thinking of remortgaging and using the cheap money in "better" investments.
Tldr, paying off your mortgage feels great but might not be the best financial move.

On the positive side, covid income reduction was not stressful like it could have been having to deal with the mortgage payments/deferrals etc.

That was my rational, once I'd paid it off I knew that loosing my job would go from being a major issue to being pretty minor as my home wasn't at risk. Could I have made more money investing the £ in something else, probably - but I wanted the security more than extra £.

Is the mortgage your only debt? It kind of looks like it is but maybe sort out any more expensive debt if you have any first.

If you're going to sell at some point decide whether doing that now makes sense or fixing the current house makes sense. It might be ok to leave the roof problems to someone else and put your money into where you really want to be.

Presumably you have a mortgage redemption to think about so you may have a little time to think about everything before it makes sense to pay it off.

My wife works for a large insurance company and she’s just told me one of their advisors she knows will give her some basic advice before taking it to a formal level.

careful how much weight you put on free advice, and how you'll manage that if you decide to ignore the helpful friend...

We had the option to empty all our cash savings and clear our mortgage which seemed like a great idea and I agree with those above saying how liberating it is to own your home.

You always need a buffer - 3 months minimum, ideally 12...

I wouldn't empty savings to pay off a mortgage (not that I have enough savings to do so), but should we benefit form an inheritance we'd definitely pay it off.

Despite the fact you can make more money not paying it off, I'm sure the benefit of knowing you can tell work to do one is quite liberating.

You always need a buffer – 3 months minimum, ideally 12…

But, if you don't have mortgage or rent to pay, the buffer you need is an awful lot smaller....