It’s been a rotten couple of years - lost my dad to Covid at 69 years old in 2020 after 5 years of increasing illness with Parkinson’s and then vascular dementia. Then just 15 months later lost my mum to bowel cancer who had a horrifying and painful battle which will haunt me for the rest of my life. I’ve been deeply impacted by the whole affair and have since suffered with panic attacks and depression. I’ve found some medication that helps but it’s all had a deep seated impact on both me and ultimately my wife and 7 year old.
Anyway, as an only child I inherited my parents modest estate - all in it will be putting about £270’000 in my bank account. Like most people my folks worked bloody hard for their modest home and savings and it was so important to them that what they had put aside helped my family and I as much as it could. There is no doubt that they have done that.
But I am trying to find a balance with what to do with it and I’m hoping some thoughts from the good folk here might offer extra food for thought (obviously my wife and I have talked at length already about our thoughts and potential plans).
Ultimately it comes down to balancing long terms vs short term. Obviously the first thing we wanted to do was clear half/most/all the mortgage. We have a relatively small mortgage left (£200k) and we are fixed in for just over 4 years at our current excellent rate (£600 a month). Next was money aside for our son and his future and finally was some money for us as a family to have some good memories, particularly whilst my son is at a good age for us all to do some special things together. Obviously the current financial climate has mixed things up a bit but ultimately the basic idea is the same. We are a modest bunch, neither of us are huge earners (old car, modest house, frugal etc) and we have certainly never had anything like this sort of money at any point in our lives.
So whilst it is tempting to go ahead and clear the mortgage completely safe in the knowledge we now have the deeds I just think there is a balance between super sensible and making the most of what I have become very aware is a short and often painful life.
I’d just like some thoughts and opinions really. Apologies for the long post.
Obviously the first thing we wanted to do was clear half/most/all the mortgage. We have a relatively small mortgage left (£200k) and we are fixed in for just over 4 years at our current excellent rate
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Although eliminating the mortgage seems like the obvious option, it may well not be the best one from a financial perspective. Having said which there's Obviously a peace of mind/ stress/ wellbeing side to consider, which probably would make it the best option overall.
It's not clear from your post, but I presume you will wait till after the 4 years to avoid penalties?
( or at least compare the penalties against the difference in interest paid/ earned)
Sorry for what sounds like a really shitty couple of years
I would clear the mortgage. That will still leave 70k ish to do fun family stuff and put some aside for your son.
Plus, that £600 each month that you're not paying on your mortgage will buy quite a lot for fun family stuff and/or putting aside for your son (or, being super sensible, give you a nice big cushion for impending costoflivingageddon)
Pay mortgage offer, put 300 a month aside for 11 years (40k ish) for the boy, spunk the rest on good times
speak to a financial advisor about the balance you want to save medium/long term.
decide what you want to spend short to medium term, what to put aside for child education, what to invest.
no point paying off a mortgage, whilst fixed (look at penalties etc) if you can potentially earn 5-15%pa on the sum over the coming years..
if this was me i'd spend some and make the memories holidays day trips, and invest the rest.
Sorry for your loss, I'm in a similar position.
My mum's will leaves some money to each of the grandchildren and the rest split between my brother and I. I've bought myself a nice watch and will be advising my girls to buy a nice piece of jewellery with part of theirs and save the rest for university. I'll be using the rest mainly to pay down my mortgage but am thinking of using some of it for house improvements that I've not been able to afford before e.g. insulation or solar.
The lack of mortgage will give me money to enjoy life more.
That sounds a rubbish year or so.
I personally would:
- save the mortgage balance in ISA etc for the next 4 years to avoid any Mortgage fees to close early - and maybe a few % of interest. In 4 years pay it off.
- Give your son a few quid in a suitable fund / account / access at 18 etc. I think if it was me I would give half the remaining money - as an 18 year old that is a good chunk to travel / deposit on house / C&H / car etc.
- use the remainder to do some wonderful things. If it were myself and mrs_oab, we would be taking a career break for a year and heading off with bikes...
I have no experience in this area. At all.
But I very much remember the year that the National Lottery started.
Multiple financial advisers agreed that the worst thing to do with a windfall is buy property.
Keep the capital. Claim the interest. Use that to repay a mortgage.
Lumps sum stays largely in bank.
Of course it's all dependent on amount of capital and current/forecast interest rates. I'm sure someone who actually does know WTF they're talking about will be able to be rather more helpful.
if you can potentially earn 5-15%pa on the sum over the coming years..
Key word being 'potentially'. You could also potentially very much not, given the forthcoming recession. Paying the mortgage off is a concrete win, any investment will be speculation.
If I was looking to maximise the financial security of my family, my first move would be to be mortgage free.
– save the mortgage balance in ISA etc for the next 4 years to avoid any Mortgage fees to close early – and maybe a few % of interest. In 4 years pay it off.
This is a good idea. You couldn't ISA it as it's way above the annual limit, but you could find a reasonable fixed-term cash savings account or bond
First, sorry you've had such a hard time of it over the last couple of years. I hope the next few years treat you and your family better.
As for the money, personally I think the split of money for the mortgage, for your son, and for some fun is a good way of thinking about it.
As you've still got 4 years worth of fix left on your current mortgage I guessing that clearing it now would result in an early repayment charge? Assuming that's the case, I would wait until the fix expires and then clear it. In the meanwhile you can either use the lump sum you have to make what overpayments you can (again this is a guess but probably in the region of 10% a year) thereby reducing the overall amount you will have paid in interest when all is said and done and/or just use it to pay the £600 every month and increase your effective disposable income.
Next up, I'd put the maximum amount possible in a Junior ISA for your son. As it's still 11 years until he'll have access, I'd personally shoot for something like a Vanguard stocks and shares ISA. I can't remember what the current yearly limit is for this, last I looked it was about £4k I think. So you can probably do this for a few years. The downside to this approach is that once he hits 18 he'll be free and clear to spend it on whatever he wants, so hopefully he's feeling nice and sensible by this point!
As for the fun, well that's down to you. Doesn't sound like you need to spend a lot of money to feel like you're having a good time, so I don't reckon a flashy car is what we're after here. Whatever helps you relax, both as an individual and as a family.
Talk to a professional.
There is a balance to be struck and right now we are heading into some uncertain times.
Paying off the mortgage is nice, it gives you security and extra money each month. But it effectively means all of your investments are in one place and it is hard to access should you need a large amount of capital in the future. Loan for 1st house?
There is likely a balance of risk and investment. A balanced portfolio covers all options.
There may be advantages into paying into a pension. Paying off some mortgage and keeping some capital. That way your outgoings reduce, you have capital for big expenses or an income to supplement.
Maybe try money saving expert to get some background then talk to a financial advisor.
If you want to give money to your kid then things like a LISA may be a good idea.
– save the mortgage balance in ISA etc for the next 4 years to avoid any Mortgage fees to close early – and maybe a few % of interest. In 4 years pay it off.
The downside to this approach is that the personal ISA limit is £20k a year at the moment, so assuming you and your wife put away the max each year you'd only get as far as £160k saved before the time came to use it all.
That said, maximising your ISA allowance for a few years (again, possibly in a Vanguard Stocks and Shares ISA or similar) and then ignoring it for a LONG time might not be a bad way of preparing for the future.
^ indeed you couldn't hide it all in ISA.
The idea of a LISA for son is a good one - £4k annual limit, but 'topped up' by £1k of government money, plus interest.
Either pay off the mortgage or save/invest the right amount for 4 years, depending on fees.
Invest the remainder for your son's future house.
Both you and he could live out a good portion of your lives "mortgage free" leaving hundreds of pounds a month for increasing your general quality of life, in a way that wouldn't seem too outlandish or feel like you are blowing it unessecarily.
@IHN thats a bit risk averse, i agree priority for me is mortgage free too, but at same time, plenty of investment opportunities at the moment hence speak to a recommended Financial Advisor.
putting a lump sum in the bank at the moment with low interest rates is just eroding purchasing power.
10% overpayment on mortgage £20k pa is a good shout,
– Give your son a few quid in a suitable fund / account / access at 18 etc. I think if it was me I would give half the remaining money – as an 18 year old that is a good chunk to travel / deposit on house / C&H / car etc.
Or, uh, speaking as a former 18 year old here, give him a quarter of the remaining money at 18, and if he pisses it up the wall, you've got another quarter squirrelled away for the house deposit when he's sensible enough...
save the mortgage balance in ISA
Consider saving some in index linked National Savings Certificates. I don't think you'll beat the index with any other investment without a substantial risk. Keep them 5 years then pay off the mortgage.
some money for us as a family to have some good memories, particularly whilst my son is at a good age for us all to do some special things together
Don't forget about this. Take £5k-£10k and create some incredible experiences in memory of your parents. Do things you would not have otherwise done.
We used some inheritance to take the kids to Lapland when they were still young enough to get the most out of it. It was expensive but I don't regret a single penny of it, my Nan would have thoroughly approved.
I lost my Mum very suddenly in my late twenties. Used most of the inheritance to buy a house (well as a deposit) and spent some of the rest on holidays & 'stuff'.
Whilst I don't actually regret it I wish I'd just chucked it all at the house. The ongoing mental relief of having no mortgage left would be an incredible gift. Like you say, they worked hard to get to that position, I bet they'd rather have worked less!
Being mortgage free buys you time and as you get older with the kids, that's the most valuable thing of all.
That was all rather sensible wasn't it?
We inherited a reasonable sum at the beginning of last year. First thing we did was pay the mortgage off, then start saving what we used to spend on the mortgage. It really is nice to know you own the bricks and mortar around you.
We're now left with a modest sum in the bank for a rainy day.
And the money hasn't gone - you've just moved it from your bank into your property.
We figure we can always take out a lifetime mortgage or move to release capital at a later date if we want to sod off on a World Cruise!
And you can do a lot of fun things with £600 a month spare, and it won't be £600 a month when your deal ends.
Consider saving some in index linked National Savings Certificates
That's a great idea, especially in the current financial climate. But inevitably NS&I aren't offering any index linked products at the moment.
Sorry to hear you've had it tough. Fingers crossed things pick up for you
This place is slipping, no 'rest on coke on hookers'?!
Paying of debt before making savings is usually wise. If what you have wouldn't clear the mortgage I'd consider keeping a chunk for a rainy day fund, but it looks like you'll clear the debt, have a sensible rainy day fund and assume left for spending or investing.... Have a holiday maybe
Firstly sad about both your losses and the
suffering all parties endured.
To try answer your query from someone who admits to having had a 100% owned property taken away from them. Please consider the following.
Deffo pay off the mortgage depending on if you get charged a penalty or not :/
£600 per month sounds like a lot to me that you could save plus £200k for a mortgage depending on the amount relative to price of the property originally also seems a lot though that's none of my business.
As you mention family I can only presume you need what you have in the area you have it.
All the very best yh oh and stay away please from new mtb standards and proprietary full suss frames.
Don't pay the mortgage if the fees amount to more than you'll save - wait.
Your parents died quite young - consider this when looking at your long-term 'plans'.
Whatever you do, make sure no more than £85k is with any one Bank, oh, and get your Wills made/updated.
As just above ^ and to look at fixed rate bonds once levels of saving interest % has risen a bit (a fair bloody bit tbh) if penalty fees restrict the paying off early part of mortgage.
I remember receiving 6.8% net for a 2year fixed rate two years in a row before Anglo Irish folded and that I consider to be my bench mark 😜
No-one has suggested the traditional STW of C & H yet? - disappointed!
When I inherited around £120k when my mum passed away in 2008 I used it to pay off a big chunk of the mortgage and am still very happy with choosing to do that as it allowed us to pay off the mortgage entirely far more quickly than when we first took it out.
I had a First Direct flexible offset mortgage so was able to overpay as much as I wanted and the money that was in my savings account offset what I still owed on the mortgage so was paying far less interest.
Perhaps a similar mortgage would give the OP a lot of flexibility as money paid off the mortgage can effectively be taken back out until the end of the term.
Alternately could also be worth considering buying another property and doing Air BnB or similar. It can be a good source of income for a moderate amount of work and you also benefit from the property value increasing.
Paying off the mortgage is nice, it gives you security and extra money each month. But it effectively means all of your investments are in one place and it is hard to access should you need a large amount of capital in the future. Loan for 1st house?
There is likely a balance of risk and investment. A balanced portfolio covers all options.
There may be advantages into paying into a pension. Paying off some mortgage and keeping some capital. That way your outgoings reduce, you have capital for big expenses or an income to supplement.Maybe try money saving expert to get some background then talk to a financial advisor.
This is the sort of very sensible, logical advice that an independent financial advisor will give you. What they can't do is put in monetary terms the feeling of freedom that not having a mortgage may bring. Really nobody can - I suspect that its different for all of us. Do you love your jobs? Are your jobs pretty secure? Might either of you suddenly want a change of career? Have either of you considered starting your own business? Have you always assumed you will work to 65/67 - would 55/57 be better? What if you could reduce your hours to 4 days a week for the rest of your working time? etc. The financial advisor can tell you the spreadsheet solutions to these (with risk factors / scenarios etc) but they can't tell you which is the best decision for you because that is about your perception of value/quality of life/flexibility/working etc.
If you really want the option to have capital at short notice and "no" mortgage then something like an offset mortgage might be worth considering. With the whole balance there it means you don't have interest and can be 100% totally mortgage free with a phone call (well its probably some forms!), but if something happens and you need 20/50/100K you can get it without needing to ask for approval (which depending on the circumstances meaning you wanted cash quickly might be an issue - like if you quit your job!).
I paid off the mortgage as soon as I could just because I wanted piece of mind of not owing anything on the roof over my head. I could have borrowed against the equity and used that as a deposit in a buy to let etc etc, but that just didn't interest me.
Basically if we ever loose our jobs, we could live on peanuts as our largest outgoing has vanished. Having said that, gas bills may soon be larger than mortgage payments - but that's out of our hands...
I would pay the mortgage off as soon as possible. There’d need to be a bit of complicated maths to work out if that’s best done now or at the end of the fixed rate.
personally, I’m looking forward to being mortgage-free more than anything right now, just so I can quit my job and do something I actually enjoy.
Your parents died quite young – consider this when looking at your long-term ‘plans’.
This looks a bit doom-laden on the face of it but it's excellent advice. Whatever you choose to do, plunder the lump sum or pay of the mortgage and enjoy the £600 extra per month or anything else - try to start enjoying at least some of it now. You never know what turn your life or health will take or when it will happen. Don't ask me how I know!
Basically if we ever loose our jobs, we could live on peanuts as our largest outgoing has vanished.
That was important for us too. We could now both take min wage jobs and still pay the bills if we had too.
On a less financial math point - my thoughts are that people often feel some guilt about inheriting money, it is a kind of survivor guilt and need to do the right thing by the people they have lost.
Fight the guilt, do some sensible stuff but do some stuff that is just for you and about enjoying life while (as others have pointed out) you can. Buy a new bike, new bikes for all the family, have a nice holiday, enjoy it a bit you have been through some terrible times and it is OK to do some nice stuff.
Sorry to read about your parents and in particular your mum, cancer is brutal.
There's no rush, if your aren't 100% sure what you'd like to do then stick it in some short to medium term savings plans, ISAs, whatever, until you do know. After my dad died and the dust settled I was left with a sum of money, it didn't feel like mine, I wasn't comfortable doing anything with it so it sat in a savings account for 6 years until I was happy using it.
Not read all the responses in detail but agree with financial advisor and didn't see any mention of putting a lump into one. I would consider this as you might as well use your tax relief on this and with compound interest over the years it 'should' serve you well in later years.
Me personally I would pay the mortgage off and any other debts....then I would leave the rest in the bank in another account...dont touch it, just use it if you need to
A few years back I got about 10k from a relative that passed....I just put it in a account ( I do online banking so I can open different accounts ...I don't touch it...but the thing is, I know its there and in my head it's like a safety thing....if anything it's helped me save more money , because now I keep transferring small amounts to this account..
I suppose different things work for different people...but the main thing is respect the money you've been given , someone worked for hard for it...so with that in mind , I would never use it unless it's important
Personally, if my mortgage was tied in for a 4 year period & it was a serviceable amount, I’d be using it to buy a piece of land to build a property on to sell.
With a bit of care, £270k should quite easily become a decent amount more, a process I would then be looking to repeat again in that 4 year period & I’d be expecting to walk away with my mortgage paid off & the original inheritance in cash.
Not read all the responses in detail but agree with financial advisor and didn’t see any mention of putting a lump into one. I would consider this as you might as well use your tax relief on this and with compound interest over the years it ‘should’ serve you well in later years.
Not sure what happened to my original response (or how to quote on this new look forum) but the word ‘pension’ seems to of disappeared. It should of read put a lump sum into a/your pension.
Thanks all for the thoughts and wise words. Plenty in there that I/we haven’t considered.
From a purely emotional standpoint the problem I have right now is I am in a very short-term frame of mind (life is short and all that) and looking beyond just the next couple of years is something I am emotionally struggling with. I think I could quite easily spend the next two years on family holidays, biking trips and more toys for the lad then he’d know what to do with. I certainly wouldn’t do that but I think given that’s where I am mentally it’s probably better to put the money to one side for a while and spend some time figuring it out properly.
A financial advisor is a good shout as it’s a world I know nothing about and could easily make the wrong decisions.
– save the mortgage balance in ISA etc for the next 4 years to avoid any Mortgage fees to close early – and maybe a few % of interest. In 4 years pay it off.
The downside to this approach is that the personal ISA limit is £20k a year at the moment, so assuming you and your wife put away the max each year you’d only get as far as £160k saved before the time came to use it all.
£20k each for you and your wife, £50k each in premium bonds is £140k, £20k each next year into the ISA is £180k and that's most of the mortgage amount.
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Given you are still fixed for four years (1-2% I guess?) then interest rates on savings will likely be higher than that in a couple of years so it makes sense to have it in savings rather than wipe the mortgage immediately, plus earlier repayment fees. Just clear it in four years time when you have no fees and the interest rate on the new one will have shot up.
But having the right amount set aside should also give piecenof mind knowing that you could clear it at any time if the poo ended up in the fan
I think the last thing id do in this situation is clear the mortgage. You say the interest rate is excellent, and given house price inflation mortgage borrowing is effectively free
The thing to bear in mind if once the mortgage is cleared then it's difficult (lifetime mortgage products are expensive) to get at the cash if you need it and you couldn't use the money to invest elsewhere.
I would be considering investing for the long term in mix of low risk (fixed rate cash ISA etc), stock market funds and pension.
I'd also look at maybe increasing the mortgage payment to reduce the overall term. doubling the mortgage payment to £1200 would reduce teen term by more than half.
Also look to see if your mortgage allows offsets, if you you could stick an amount of cash in there to reduce interest
If you don't have experience, go to a financial advisor. But don't use your bank, as they can only advise on the things the sell. Have a look at an adviser like Hargreaves Lansdowne to get an idea of how it works.
My immediate concern would be spreading the cash around different banks as the amount exceeds the amount the government protects (£85k) in the event of bank collapse.
As someone above said, £50k each in premium bonds is a no brainer while you are deciding what to do long term.
It's risk free, and while you don't get guaranteed interest, the prize fund is structured so you could expect 2% ish or annum
Bad luck OP, sounds like a shitty time you and yours went through.
My wife and I have been fortunate enough to have frugal parents that worked hard to be in a position to help us get our feet on the ladder. It means we’ve been able to have a smaller than average mortgage and no other debt of any kind. It also means we want the same for our kids. Our no.1 priority is to clear the mortgage before the kids are adults so that we can try to give them the benefit.
We still have a great lifestyle but when we inherit from our parents I’m certain we’ll clear the mortgage rather than do fancy stuff that ultimately makes no real difference to our lives.
Also, and this is important to me, my parents haven’t frittered money away so I won’t want to disrespect their legacy by doing so.
Another thought would be - the £600 per month saving on the mortgage would be enough to reduce hours? You don't lose 20% of your pay dropping to a 4 day week.
I did this for a period of a couple of years. Similar circumstances. Realised I could afford it and watched my dad succumb to cancer at 67 and my FiL at 60. Neither got more than 12 months retirement. Decided to take some time now while I was fit and healthy.
Unfortunately in the new job they wouldn't do it (much smaller company) but I'll push again when I've been here a while. New bikes are nice, but not as nice as the time to ride them.
Some mentioned energy costs...having the capital without needing to borrow may make any home efficiency stuff easier to bear if you are in the property long term (i.e solar and battery storage/hot water panels/sprucing up the insulation. Obviously you'll need to do some careful sums on whether it costs up, unless knowing you are doing your bit is a priority too.
Hobnob has a great point re buying a plot and building a house. Perhaps brave at the moment but in not many years you could be mortgage free with savings and a valuable property that is specific to you and your family & cheap to run.
(Unless you really love your work (same goes for your wife) I'd look at cutting a day of work each and enjoying 'time'. You can go out and earn more money, time is your limitation. My grown up kids never mention 'things' from their childhoods, they mention events, stuff we did, places we went etc...most of them were simple things, Mildenhall Cycle Rally every August bank hol etc)
