12 min read

Paid off the mortgage? Here’s what to do with the spare cash

It’s taken a number of years. There’s been blood, sweat, tears and denial. But, finally you’ve made that last mortgage payment – you’re free. The house is yours and you’re several hundred pounds a month better off.

An older couple sitting in their garden, smiling.

What next?

Quick, don’t just let the extra money fritter away. The average age of paying off a mortgage is 54, so you could be looking at sinking the cash into a number of other things – from savings to insurance to home improvements.

The bricks and mortar might be paid for, but aren’t there some other precious things you should be looking to protect? Like, maybe, your family, your health or your sanity!

If you’re in the 55-64 ‘age of reckoning’ bracket when 71.3% of homeowners become mortgage free – take a look at just some of the options available to you before taking your next financial step:

1. Increase your cash savings

Setting something extra aside is generally a good idea, particularly if you’ve got children or grandchildren at university, as annual tuition fees have averaged at £8,500 this year. You’ve a few choices for cash savings – instant or ‘easy access’ accounts, regular savings, fixed term deposit, index-linked (interest is linked to inflation) or cash ISAs (tax free).

There are a range of higher rate savings, from ISAs to high rate current accounts to fixed term accounts. Each have pros and cons depending upon whether you want the highest interest rate, quick access to your cash or a tax free option (you can put up to £5,760 in a cash ISA per year). But be mindful of interest rates. The interest on savings is strongly influenced by the Bank of England’s base rate – and this has been at 0.5 per cent since March 2009. Recent predictions are for it to be stuck there for some time to come [1].

2. Decrease your work hours

If you’re still working full-time, using the extra cash so you can work less might make your life more enjoyable. Going part-time later in your career is a growing phenomenon and having more time to enjoy grandkids, or the garden, may even have a positive impact on your health by reducing stress. But do your maths carefully to make sure you can afford it, and remember it may have an impact on your pension.

3. Buy life insurance

For the over-50s life insurance (also known as life cover) can still be a useful option. Your life insurance may have ended with your mortgage but you may still be working for a while and have a family that depend on you. If you’ve had kids later in life, will they have enough to live off or to cover the household bills? Have you got grandkids you’re helping look after? Recent research shows that two in five people retiring in 2013 are still giving money to dependants and 16% of current retirees have children under 25 living at home [2]. You may have loans that will need paying, and then there’s your funeral. For the over-50s life insurance in these cases can look attractive.

Whole of life insurance will pay out whenever you die if you keep paying your premiums (fixed term insurance pays out on a certain date and is usually to cover a loan or mortgage). Some whole of life cover, including some life insurance aimed specifically at over-50s, also includes critical illness cover so you can claim some of your pay out early if required. Be aware the amount may be fixed so may not keep in line with inflation – and due to inflation rates there is a possibility you could get back less than you paid in.

4. Improve your home

Putting some extra value on your home might not be a bad idea – UK house prices were rising at their fastest rate for three years in the first half of 2013. Extending into the loft, knocking through the kitchen, or anything that might increase your home’s value, might be worth doing, even if you don’t plan to sell in the near future.

5. Invest in shares

You could use the extra cash to invest on the stock market. Over longer terms stock market investments have tended to outperform bank or building society deposits – but the trade-off is that the value of stock market investments can rise or fall so your cash could be less readily available or you could get back less than you invest. So the risks could be higher but so could the rewards.

If you’re not feeling confident to strike out on your own, one option is a pooled investment fund where lots of people put their money together and a professional fund manager invests it. Fees can be higher because you’re buying into the expertise of a fund manager so it all depends on your specific circumstances.

6. Pay off those outstanding debts

It’s an obvious one but also a very practical option at a time when savings interest rates are low and have been for the last five years. Now that you’ve paid off what is likely your biggest debt, it could be a good time to clear any other outstanding debts that have accumulated over the years.

7. Splash the cash

Alternatively, you could give in to temptation and make a down payment on that once-in-a-lifetime purchase. Thinking about that classic yellow Ferrari 458 Italia? Well, be prepared to put aside a considerable chunk as they currently retail at £178,491! Or is that month-long cruise looking more attractive by the day?

What now?

There are plenty of options out there to help make that extra money work as hard as possible for you – and whether you’ve got your eye on some home improvements or you want to boost your savings in a tax efficient manner, all you need to do is decide how to put it to best use. So, before that spare cash just gets gobbled up in everyday items, get your pen and paper out and put together a pros and cons list to work out what’s important to you.

1 Office for Budget Responsibility (March, 2013), “Economic and Fiscal Outlook” [online]. Available from www.budgetresponsibility.org.uk
2 Prudential (20130, “Class of 2013 research” [online]. Available from www.prudential.co.uk

Note: Whilst we take care to ensure Talking Finance content is accurate at the time of publication, individual circumstances can differ so please don’t rely on it when making financial decisions.