- This topic has 47 replies, 35 voices, and was last updated 3 years ago by footflaps.
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Another money thread – inheritance…
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the-muffin-manFree Member
We’ve just inherited a sum of money that will enable us to pay off our £76k mortgage and leave a few £k left over. The question is – should we pay off the mortgage?
– 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’ve got little in the way of pensions.
– We haven’t got a huge savings pot.
– We’re both on modest incomes.
– We’re both early 50’s.
– Our current mortgage is 50% interest only/50% repayment – a legacy of our financial situation when it was taken out. It ends it 8 years and the plan was just to sell up, move to something smaller and clear the balance.The truth is we’ll never see this amount of money again and we kind of feel we should enjoy it (in a sensible way – not on coke and hookers and fast cars!) rather just chucking it all at the mortgage – feeling no better off – and then, well you never know, I’ve seen plenty of people die soon after retirement.
dannybgoodeFull MemberGiven 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.
mattyfezFull MemberWould 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?
Fresh Goods Friday 696: The Middling Edition
Latest Singletrack VideosFresh Goods Friday 696: The Middlin...grantyboyFree MemberI’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/enjoymentYour mortgage payments will now be your play money every month to enjoy life with
AidyFree Memberthe 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?
the-muffin-manFree MemberCurrent mortgage payments are just under £300 a month on a 1.25% above base tracker.
IHNFull MemberI’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/enjoymentYour mortgage payments will now be your play money every month to enjoy life with
This.
the-muffin-manFree MemberIs 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.
daveyladFree MemberDon’t underestimate the feeling of having no mortgage to pay on a monthly basis. It really is liberating.
inthebordersFree MemberSaving £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?
nickjbFree MemberGiven 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.
doomanicFull MemberI’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.
the-muffin-manFree MemberOut of interest, have you kids who’ll inherit off you?
One daughter who’s 18.
mcj78Free MemberIt’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!
AidyFree MemberI’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.
thegeneralistFree MemberWe’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…
hungrymonkeyFree Member[STW] how much are you intending on giving to charity?[/STW]
the-muffin-manFree MemberGot 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.
inthebordersFree MemberOne 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.
eddFull MemberPersonally:
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.
n0b0dy0ftheg0atFree MemberPay 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.
nealgloverFree MemberSet 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.
the-muffin-manFree MemberThis 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.
wobbliscottFree MemberI’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.
kittyrFree MemberI 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.
kiloFull MemberDon’t underestimate the feeling of having no mortgage to pay on a monthly basis. It really is liberating.
+1
MarkyG82Full MemberI’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.
poolmanFree MemberI would pay off the mortgage. It may not be the optimal choice but you really cannot beat the feeling of being debt free.
thegeneralistFree MemberBefore 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.
TiRedFull MemberI 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 🙂
poolmanFree MemberYes 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.
flickerFree MemberDepending 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.
chevychaseFull MemberI’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.
slowoldmanFull MemberPay 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.
pihaFree MemberI 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 ^^^
MoreCashThanDashFull MemberPay 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.
footflapsFull MemberI’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.
b230ftwFree MemberPay 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!
CougarFull MemberIf 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.
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