Could anyone sense check what I am thinking of doing with an imminent inheritance?

Fairly obvious/straightforward I think and not huge value – happy to provide basics here and numbers by email/pm.

Thanks 🙂

happy to provide basics here

Go on then

Assume you’re investing in the standard C&H scheme?

Assume you’re investing in the standard C&H scheme?

Best not put all your eggs in one basket, I’d put at least 5% in Ketamine and Crystal Meth…

Since giving up my legal job I’ve not been able to remortgage due to the salary drop. The inheritance I am getting could pay off my entire mortgage, however it seems more sensible to use just enough (about half*) to enable me to remortgage on my current salary (and get down from std variable rate) and keep/invest the rest otherwise.

I’m 49 with no huge pension fund and might want to retrain and/or move/sell/convert to BTL. *The return on the half going into my mortgage would effectively be 9%.

Work out how much readily-available cash you might need for any retraining you may wish to do. Set that aside.

Also set aside enough cash for three months living costs (a rainy day fund).

Pay as much debt off as you can with the rest.

Having been in a very similar position we paid off a small amount of mortgage which brought us into the lower LTV bracket and allowed us to remortgage. The rest of the money has been invested, some into long term savings as part of a pension, the rest gives a pretty healthy return, way better than the mortgage interest, and should continue to do so and be a nice pension top-up . I’d put as little as possible into the mortgage and find a better use for the rest.

 the rest gives a pretty healthy return, way better than the mortgage interest,

It’s not just about a comparison to the mortgage interest though, it’s also to the potential return from investing in the property market, which is effectively what you’re doing if you pay off your mortgage.

It’s not just about a comparison to the mortgage interest though, it’s also to the potential return from investing in the property market, which is effectively what you’re doing if you pay off your mortgage.

Well I’m still paying off the mortgage, just not at once. I’d still own the same house in the end and have the same amount invested in the property market (actually I’d have less invested in property as some investment has gone into another property, albeit in a small way)

2 conflicting views, confused already 😀

I guess it’s about whether you get a better return on investment of a lump sum vs income released from mortgage

I’m not an IFA.  Ultimately an IFA will measure this on “return” or pure accounting value terms.  To me (and I am not you) there would be a lot of sense in paying off the mortgage completely* so that you are debt free and earnings matter much less.  That doesn’t solve your pension issue, but it would give you however much more disposable income to put into a pension (or other investment).  Having that sort of security would make ME much happier, possibly without dependants you’ve already made that leap when you quit law, and your priority is the next career change – ie, what I am saying is this is not just about the sums.

*if you have (or can move to) a mortgage which lets you offset or overpay and reborrow this may be better as then you have access to low cost cash if needed (assuming you trust yourself to use that facility responsibly)

+1 for paying off the mortgage in full*

*Disclaimer – The value of investments based on the advice of  internet comedy panthers can go down as well as up

I’d still own the same house in the end and have the same amount invested in the property market

But you’d have paid much more for it, as you’d have been paying interest payments along the way.

Fag packet maths:

House worth 200k now.

Mortgage outstanding is 100k, 15 years left on it

Pay off the mortgage in full will cost 100k

Paying the mortgage off at 2% (and that’s optimistic in the current environment) will cost you about 115k over ten years. So you’re other investments will have to cover that 15k shortfall before you’re making any ‘profit’ from not paying your mortgage off. if rates go to 4% your shortfall is £30k

but, regardless, what Poly said.

2 conflicting views, confused already

That’s the problem. There’s no right answer. Paying off the mortgage is the simple solution. It’d certainly take the edge off all your other financial issues. That said, with rates as they are you can easily get a better return elsewhere, and that better return will pay of your mortgage (albeit slowly) and give you an income. IMO its the better option looking to the future, especially if you don’t have a gold plated pension, but I can totally see why plenty of people would happily pay off the mortgage and be done with it.

Ta all, so there is simplicity/psychological safety-net of paying the mortgage off or offsetting it (cheers poly, that is of course a factor, neatly explained), vs confidence in investing the cash* giving a better return than the mortgage would cost (*after keeping some easily accessible).

So if I was a top-notch investor (LOL) the latter option would be obviously better.

Paying the mortgage off at 2% (and that’s optimistic in the current environment) will cost you about 115k over ten years. So you’re other investments will have to cover that 15k shortfall before you’re making any ‘profit’ from not paying your mortgage off. if rates go to 4% your shortfall is £30k

Totally agree. If you could only get 15% or even 30% over a 10 year period by investing then it would be a terrible idea. You should be able to double your money over that 10 year period which makes it look a lot more appealing. Also if rates change significantly you should have some in a pot that you can access and pay the mortgage off at that time if that is the more prudent option. Each to their own. There is more work and more risk doing it this way but the rewards are there if you happy to put the effort in and take a chance

Assuming you are me, I would:

a) pay off the mortgage
b) direct maximum permissible amount of salary into a pension.

Pension tax benefits + free money from my employer would swing it for me.

Ta all, so there is simplicity/psychological safety-net of paying the mortgage off or offsetting it (cheers poly, that is of course a factor, neatly explained), vs confidence in investing the cash* giving a better return than the mortgage would cost (*after keeping some easily accessible)

That’s a fair summary. I took the plunge and made a few investments and subsequent lifestyle changes. So far, so good. It could all come tumbling down but its been OK. Actually looking at a few riskier options now I have a fairly stable base. I still worry that I have no idea what I’m doing and that’s one of the reasons for posting on threads like this, so people can say “ah, but you forgot this…”. Its always welcome to get another point of view.

That’s the problem. There’s no right answer.

+1

There are just a list of options. Can’t see an IFA being much help as all he can do is list the options. No one knows how well future / current investments will do, nor what will happen to house prices.

Personally, I paid off the mortgage so I didn’t have to ever worry about loosing my job etc. I could have got a better return in stocks and shares, but that would all depend on what I bought etc….

Ta. I guess I can research investments, albeit you’d hope an IFA can advice on that, I suppose there’ll be info online.

Always looked scarily smoke and mirrors to me, but I should be able to understand it.

Nick, care to share what/how/why on the lifestyle changes?

Nick, care to share what/how/why on the lifestyle changes?

Roughly speaking, put some money into stocks and shares isa. That is sitting there steadily rising. Put some into buy to let (commercial property before the haters get here) and some into easy access rainy day savings. Self employed so no options for employer pension top up. The buy to let covers the mortgage on my house. That has allowed me to be more flexible with work and I’ve taken some time out here and there to improve and add value to the house and do other fun things and a few alternative work things. I’m doing more work of my own choosing and less work that I have to do to pay the bills. A much better work life balance and I feel a lot more financially secure and part way to a retirement plan. There’s still plenty to worry about and I’m still learning and looking at other options but it works for me.

Cheers, does sound positive.

On the pension front it’s worth considering the tax position – the Inheritance will arrive tax free (IHT if applicable paid by the estate before you get it) – if you pay in to a “pension” arrangement, any income derived later will be taxed (excluding of course the 25% lump sum). If you save in ISA’s etc the output will be tax free (in general). FWIW, I paid off my mortgage knowing full well that I’d be tempted to dip in to the various pots for things I wanted/needed as life went on.

if you pay in to a “pension” arrangement, any income derived later will be taxed (excluding of course the 25% lump sum).

You forgot to mention you get tax relief on your contribution and you can carry forward three years worth of unused allowance…

I’d pay off the mortgage. Being debt free feels great.

if you have the mortgage fully paid off that makes it slightly easier for you to take another period out to retrain if you want.  In all cases though I would leave a largish lump to cover unforeseen circumstances

You forgot to mention you get tax relief on your contribution and you can carry forward three years worth of unused allowance…

But there’s a maximum proportion of “salary” that can be contributed isn’ there?

But there’s a maximum proportion of “salary” that can be contributed isn’ there?

£40k a year. Something like £1.5M lifetime.

Even if I didn’t have a mortgage, I’d be hard pressed to get £40k a year into a pension. YMMV.

Since giving up my legal job

So are you saying crime doesn’t pay? 😉