‘Interest rates are rising – should I pay off my mortgage?’

Receiving an inheritance is a golden opportunity for a financial reset, but it can also leave the bereaved with a confusing array of options.

Julia Cooper, 58, from Northumberland, received around £136,000 when her mother died three years ago. Although some of it is invested, the majority of it is in an easy-to-access savings account, which means it quickly loses purchasing power due to inflation.

Originally from Canada, Ms Cooper came to the UK in 2004 and is now a lecturer at Newcastle University. She transferred £65,000 of her inheritance to Britain where she invested it in an Isa with wealth manager St James’s Place.

The rest, the equivalent of £70,937, is in a Canadian savings account earning less than 1pc interest.

Ms. Cooper now plans to transfer her Canadian savings to Britain where she can invest them. However, there are other ways she could use the money that could reap rewards in the long run.

Ms Cooper and her husband have a mortgage of around £52,384 for nine years. They are one year after a five-year fixed rate at 1.79pc, making monthly payments of £534. She also plans to build an extension costing around £50,000.

This, combined with paying off his mortgage, could eat up the majority of his savings.

Meanwhile, Ms Cooper has around £5,200 in cash for travel and £17,400 in a joint account with her husband for emergencies.

She has contributed to a defined benefit pension scheme since 2006 and her pension on retirement in nine years will bring in around £15,440 a year with a lump sum of £27,000.

She plans to visit Canada every year after her retirement, which will cost around £5,000 a year.

Chris Wheeler, Certified Financial Planner, MPA Financial Management

In the nine years leading up to Ms. Cooper’s retirement, inflation will reasonably reduce the purchasing power of her Canadian savings.

It will also have to take into account exchange rates and possible tax changes in Great Britain and Canada. To simplify matters, Ms Cooper would have to transfer the money to Britain, although the total amount is likely to be reduced by the exchange commission.

If she pays off her mortgage now with the inheritance, she may be hit with prepayment charges. The interest rate is low, so it may be best to keep paying until there are no more redemption charges applicable.

Comments are closed.