UKH

We have recently received a sizeable gift of money and we're trying to decide what to do with it. We could use part of it to pay off the mortgage and we'd still have a fair amount left over (more than can be put in an ISA in one go).

If this were you, and given that the mortgage is costing ~4%, would paying it off be your priority? Might that have an impact on our credit rating if we needed to get a loan in future?

Take it as read that a reasonable amount will be donated to various charities. What would you do with the rest (assuming you didn't spend it all on booze, drugs and loose women)?

In reply to Martin W:

spend it all on booze, drugs and loose women

In reply to Martin W:

You have to slide an appropriate chunk into a slush fund for something you wouldn't have done otherwise; personally that would be some sort of travel for us and the weans, the rest I'd have a chat with my IFA about.

Enjoy!!

In reply to Martin W:

Keep the mortgage and buy a bigger property? If you paid it off I don't think your credit rating would suffer as you likely have a good history of paying off debt. Also if you pay it off you'd be able to save a lot so shouldn't need a loan in the future.

In reply to Martin W:

4% is still probably more than you'd get in most savings accounts / ISAs isn't it?
can you pay off nearly all of the mortgage?
my first boss did something like that. i think he kept a monthly payment of something like 100 quid just so he could keep a mortgage if he ever needed extra credit

In reply to Martin W:

It might be worth asking yourself why you would need a loan if you have money in the bank. Paying down the mortgage is probably the most effective use in terms of interest rates but check that you can do so without penalty.overpayment is often catered for. Beyond that I am in the same position. I have cash I cant afford to lock up but at the same time interest rates are so low it is losing its value sitting in a savings account. Thinking of opening high interest current accounts but it is a major faff as you have to ensure money flows around to take advantage.

In reply to mh554:


And waste the rest!

In reply to Martin W:

Do you have kids? If so, one thing to think about is whether to slide some aside for them, either to a JISA, or dedicated uni savings fund. Not sure how JISA's work in conjunction with ISA limits. All stuff a decent IFA would know, I guess.

In reply to Martin W:
My Dad was made redundant from his job as a bank manager in the early 1990s, he got a very good package which I recall was around £60K, which at the time was enough to clear the mortgage and some. I recall he decided not to do so because with the low interest rate a mortgage typically carries it wasn't worth it. Instead he invested the money in various ways, then took a much less demanding[1] job in a call centre until his retirement.

[1] First thing he said to his new manager was, apparently, that he had no interest in being promoted in any way.

Neil

In reply to Martin W:

Pay off the mortgage and then spend the rest on expensive red wine and fat steaks.

In reply to Martin W:
I'd look at peer to peer lending for a fraction of it (say 20%). E.g. Ratesetter. A good way to help people get fairer deals on loans whilst seeing a good return (enough to match the mortgage, after tax) and sticking it to the high street banks. I'd only invest a fraction of the windfall this way as it's not FSCS guaranteed.

In reply to wintertree:

Good point. I've got a tiny amount of money (500 euros) in Bondura as a 1-year test to see how it works out. I'm 5 months in and the annualised interest rate looks close to 20% so far.

In reply to Martin W:

My plan come the windfall day ( which has zero chance of happening) whilst still remaining in employment, is to max out my contributions to my pension pot, reaping the tax benefits whilst living off my secuely banked windfall

In reply to Martin W:

Most decent advisers will tell you, pay off the mortgage. S

In reply to Martin W:

A friend is fortunate enough to be in a similar situation and was asking about this recently. In my mind, a lot depends on your age, and other income/ assets. But a couple of thoughts:

- ISAs are brilliant, no tax on income and get your money out whenever you want. Superb.

- Mortgage are nearly always the cheapest source of debt you can find. So if you expect to have to borrow money in the future, e.g. new car. Then you may be better keeping the money available. Paying a lump to reduce but not pay off may be a good option.

- Your credit rating depends on level of debt, how you utalise debt (borrow for something and payback over time, versus reugulary over spend and dip into overdraft/ credit card), and payment history. Mortgages are a good debt as far as your credit rating, since it was money used for something tangible and debt reduces over time, and the regular payments are also good since they keep your credit rating current.

- Depending on your income, adding money to your pension can give one of the best returns, because you can claim back income tax. But of course the money is locked up.

- Interst rates on savings are poor, but other household bills often include finance costs. e.g. house insurance, car insurance, even some utilities charge pretty steep interest rates, paying up front can provide a good return on money.

- House improvements, especially if you are going to have to do them at some point anyway. e.g. new boiler, replacing windows, etc can provide a good return on money by reducing bills. Future savings on bills can then be invested against future years ISA allowance.

In reply to Bob Hughes:


What is Bondura? Google suggests Bondara and I'm not clicking on that!

In reply to Martin W:
The effect on your net cash of paying off the mortgage at 4% is like a super safe investment paying 6% ish before tax.

In reply to Bob Hughes: Is this peer to peer? How does a return of 20% relate to borrowers getting a "fair deal on loans"?

In reply to andy:

Wondering the samething myself. Not a peer to peer company I recognise. I use ratesetter and Zopa and am just about beating the 4% mortagage rate of the OP (after tax). I personally wouldn't put any more than 10-15% of a lump sum into this type of product though as I am far too risk averse

Money and Co looks interesting as you lend to businesses looking to raise capital - returns look potentially higher but I can't really get a sense of the risks yet.

In reply to hudav:


Depends on the ISA. The best rates are for fixed term deposits which usually have penalties for early withdrawal.


We can always remortgage if we have to.

A good part of the extra cash we'll have each month due to not having to pay mortgage repayments will go in to savings of one kind or another, including possibly pension.

In reply to Loughan:

sorry - it's bondora. 2 x "o's"

https://www.bondora.co.uk/

In reply to Martin W:

Agree, but you can still get it out versus paying down a mortgage where the money is far harder to access (unless as you say you re-finance). But personnally I would opt for a stock and shares ISA. The cash rates are pitiful, and you can probably achieve just as good cash rates outside an ISA depending on your tax rate.

You can remortgage of course. But there are often fees associated with doing so, so the impact of same on benefits achieved depends on timeframe.

Another thing to consider is an off-set mortgages.

In reply to Martin W:

My advice would be pay off as much debt as possible, starting with most expensive. 4% isn't a super low interest mortgage, I'm lucky enough to be paying 1.25% at the moment, so I would pay it all off. I would then put the remainder plus any additional money you free up monthly into a number of investment and savings vehicles which mix risk, cash availability and tax efficiency to suit your own requirements. Only you know your requirements. I'd probably have a nice holiday and buy that replacement rear bike wheel as well.

In reply to andy:

For your first question, it is peer-to-peer

For your second, well, yes I agree with you. I'm not sure where to place it on the moral spectrum. That wasn't initially a concern for me but as I'm going through the pilot year I am starting to worry that its kind of like peer-to-peer loan sharking without the knee-caps risk. The only thing going for it is that they are very explicit about the set up and the interest rates so borrows go in with their eyes open. But having said that, if people are desperate you do wonder if transparency is enough.

In reply to Martin W:

I concur with reducing debt, highest rate first then Cash ISA's then take at look at NS&I (Gov) Premium Bonds.

The only risk is not winning i.e. no return, but the investment limits have been increased, as has the winning prizes. 2 chances to win a £1M every month and zero risk to your capital. I'm averaging a much better return than bank savings on a modest investment. Trouble is I spend the winnings on wine, women and song instead of re-investing.

Come back on here and ask what to do with it when you win

In reply to DefenderKen:

Premium Bonds are a total scam and terrible investment. They sell them by calling them 'winnings' but if if think of it as interest and look at the amounts you're much better off with the cash in a good bank account.

In reply to andy:


Better than the 5000-8000% APR charged by the 'dayday lenders' (aka usurious skum)...

OP: if you received a large sum as a gift, do you need to consider protection against tax claims, given the limit on how much can be gifted in one year? i.e. stick some of it in a savings account to cover the event that you need to pay tax on it?

In reply to Martin W:

You could stick the lot in your pension, it will be grossed up by 40% (assuming your a top rate payer). Then switch your mortgage to interest only reducing monthly costs. Then take out tax free lump sum on retirement to pay off mortgage. I know a few people who do this with their annual bonuses.

In reply to JayPee630:


They're terrible if you want a measurable return, but if you're lucky you can do quite well. Mostly I don't seem to be - DefenderKen must be getting all my share

In reply to JayPee630:


They certainly are not a scam, and I don't think they are terrible either.

On average they see a return of 1.30% APR, tax free, which is equivalent to 1.63% on a bank account for a basic rate taxpayer 2.17% for a higher rate taxpayer. Even the 1.63% APR is better than current instant access savings accounts, most of which have a 1 year gimmick rate.

Now, they do need more understanding than a savings account - each £1 you have invested has a fixed, small chance of winning a prize. The effect of this is that the prizes are randomly disbursed leading to variation or "noise" on the monthly returns. The smaller your investment, the larger the noise; unless you are in with £10k+, then you are going to see significant variation in return. Once you hit ~£10k they have a high probability of returning a consistent return, and there's always the astronomically small chance of winning big. I imagine they're quite attractive to higher rate tax payers who want a reasonable (i.e. better than banks) return, instant access and 100% deposit security.

If you'd care to explain how this is a scam?

In reply to Martin W:

Depends how old you are, how happy you are, what your needs and priorities are, children, married???

I would always have paid off the mortgage first, because I hate owing money and that would give me peace of mind (rather old fashioned and not necessarily the best financial move, but right for my wife and I).

You could hold a big weekend outdoor party and invite us all from the forum - free food and bar for us naturally. That would make you hugely popular.

In reply to Martin W:

Definitely look in to a SIPP.

Tax-relief at 20% or 40% on way in, 25% tax-free cash from age 55 with no requirement to draw an income (Altho on death, there's tax implications once you've taken any pensionable benefits)

It's even more of a good idea if you're current salary puts you in the 40% tax-bracket atm but on retirement you pay 20% income tax as you receive tax-relief on the way in, not on the way out (As happens with an ISA).

Also, be warned re stocks and shares ISA there's no longer much in the way of tax-benefits if you're a basic rate tax-payer (Unless you expect to be above the CGT threshold (About £10k IIRC) if you're invested in equities altho if you've invested in a corporate bonds you can claim back the 20% tax on income.

Anyway, speak to an independent financial adviser for proper advice. It's all fee-based now so if you want advice you've got to actually pay for it but at least this transparency does away with accusations of commission bias.

In reply to Martin W:

Or climb the seven summits? Spend the rest of your life doing talks and writing books about how you nearly died, then use whatever is left over to rent a spot in Alex Honnolds van.

In reply to wintertree:

Not a scam per se, my bad choice of words, but they way they sell them cons people that they're a good investment whereas most people will get less than a good bank account.

In reply to Martin W:

Invest in commercial property.

In reply to Martin W:

Develop a crack addiction, either the drug or some kind of Wideboyz fantasy.

In reply to Martin W:

Watch Brewster's Millions and then you'll get a few ideas

In reply to Martin W:

If it helps we were in the same situation. I paid off the mortgage and then put a good sized deposit down on a better house that we moved in to so though I still have a mortgage it is being paid by the nice people who are renting our other house leaving us effectively debt free.
I am using some of what I would be paying on the mortgage to over pay on the house we live in with the idea of buying a thing place in a few years and having 2 houses paying for the one and by over paying that by the time I am 60 I should have 3 houses, all paid for and 2 bringing us a nice little income in.
My plan might or might not work but I would rather do that than have some suit take a large slice in fee's if I put it in my pension.