SHOULD I USE MY INHERITANCE TO PAY OFF OUR MORTGAGE OR SAVE IT FOR MY CHILDREN?

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This week’s dilemma can be found below – email us at [email protected] with yours.

Dilemma

I’m stuck in a bit of a financial quandary. I recently inherited a sizeable sum from my late mother – around £250,000. It wasn’t something I ever expected to receive, and while I’m grateful, I’m also feeling somewhat overwhelmed by the responsibility.

My partner and I have been together for eight years and are both in our early 40s. We have always shared finances fairly equally, but there’s something about this inheritance that doesn’t sit right with me.

I’ve always been very independent financially, but now that I’ve received this large windfall, I feel unsure about what to do with it.

My partner suggests we use some of the money to pay off our mortgage, which would leave us with more disposable income each month.

He’s always been in favour of becoming debt-free, and I can see the appeal of having a mortgage-free home, especially for our two children, who are 10 and 12.

But I’m hesitant. I feel like this money could be better used for something else – perhaps something that benefits both my children and myself in the long run.

This money came to me from my mother, and I wonder if it should be used for something more personal – perhaps to help my kids with university fees or even put it into a high-interest savings account for them.

Should I be using this inheritance to benefit our family’s financial future in this way, or should I hold firm and make sure my children benefit from it directly, perhaps keeping it aside for their education?

What’s the best financial move here?

Emily Braeger, The i Paper’s money reporter, replies

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The inheritance you’ve received is a significant windfall, and it’s understandable why you feel conflicted about how to allocate it.

Given your situation, there are a few key factors to consider when deciding what to do with the money.

First, paying off your mortgage would be a solid financial move. By eliminating this debt, you would free up monthly income and lower your overall stress.

A mortgage-free home provides long-term financial stability, and it could help ease any future financial pressures, especially if you want to be in a position to support your children’s future education or other expenses.

However, as you rightly point out, the emotional connection to your inheritance could change how you view the money.

Your children may benefit from it directly if you set it aside for their education or future needs, and this could help them avoid student loans or provide them with a financial foundation as they transition into adulthood.

Setting up a high-interest savings account or investment fund specifically for them is an excellent way to allow the money to grow over time.

This would allow the inheritance to continue benefiting your family long-term while respecting the intention behind the gift.

Currently, the top easy-access savings account is with Plum, which offers a top 5.92 per cent rate for newbies (3.54 per cent base + 2.38 per cent bonus for three months), according to Moneysavingexpert.

After that, check for better deals, as the bonus ends and the rate drops to 2.5 per cent after four withdrawals.

If you would prefer no short-term bonus, Tembo offers 4.8 per cent with unlimited, penalty-free withdrawals – though like all variable rates, it can change anytime.

On the other hand, splitting the funds between paying down the mortgage and investing for your children might offer the best of both worlds – immediate relief from debt while also securing their futures.

One thing I would say is – don’t forget to consult with a financial planner to help ensure your decisions align with both your long-term goals and tax efficiency.

Inheritance tax implications, although not an issue in your case due to the amount, are still something to consider when you think about how best to use such a sum.

Whatever you choose, ensure it aligns with your family’s values and future financial goals, and don’t feel rushed into a decision.

It’s absolutely okay to take your time to make the best choice for both your immediate and long-term security.

2025-04-12T05:32:06Z