S+S ISA for Mortgage Repayment

cagey76 · 5 October 2007 at 7:21AM

Hi,

Mortgage is set at 5.1% for 10 years, ignoring the interest, the capital repayment part is 420 per month. If I save the maximum 7k in ISA's for myself and wife each year, 1166 per month between us, and achieve 12% return on average, then the mortgage is clear in 10 years.

Is 12% a likely return for me ? My investment advice comes from the weekend FT and Money Observer magazine. Would I be better off with an IFA ? I am thinking I could start with my own choices, but after a couple of years the pot would be bigger and therefore professional advice would be worth it.

I have 20k to start with, and was going to invest this years 14k shortly across 4 investment funds, choosing two higher risk, and two lower risk. Then leave the remaining 6k in a savings account, to start working towards next Aprils 14k, and to fall back on.

Does this sound healthy ?

Mortgage_&_debt_free · 5 October 2007 at 7:44AM

Maybe, maybe not, it depends on what the market does. Personally, having to achieve an average of 12% p.a. just to pay the mortgage would lead to sleepness nights.

I would rather have the piece of mind knowing that I was definitely reducing my mortgage than relying on the vagaries of the market to do it.

HTH

pjala · 5 October 2007 at 9:50AM

The 5.1% fixed interest, is already with capital payments included? That is it is not interest only - in which case your mortgage is being payed off at that rate already.
If so the additional amount to save is ok into a S&S ISA, check out the many links available for finding out the best funds to buy into - depending on your risk elements. The IFA route is a good idea for this.

cagey76 · 5 October 2007 at 10:52AM

Maybe I was unclear.

I do not need to achieve 12% to pay mortgage, in theory I only need to make 5.1% to cover mortgage. I intend to save my maximum ISA allowance which will be considerablymore than the 420 per month that is the difference between the interest only I currently pay v a 25yr repayment figure.

What I wondered was should I be using an IFA, and is 12% achievable ... or is it pessimistic !

[Deleted User] · 5 October 2007 at 11:02AM

Yes it might work out well, this was traditionally refered to as a endowment.

But id recommend, getting a repayment mortgage over say 25years, overpaying it by a grand each year.

Then getting a stocks and shares ISA. The reason why endownments didnt work was because they had high management fees and you had to cash them in when they finished, in the real world you want to cash the policy in when the markets at a high, if its at a low you want to wait 2 years etc.

8% is realistically achieveable using the stock market over eh long term.

dunstonh · 5 October 2007 at 11:57AM

Using ISAs against an interest only mortgage is fine if you invest well and have a low target growth rate. For example, I wouldnt do it if you were using a balanced managed or FTSE tracker. The risk vs reward isnt worth it there. However, using a decent spread offers better potential and as long as you accept the risk, then it can be worthwhile.

Personally, I use ISAs against my mortgage and average 15% a year (including crash years) but my target growth rate was just 5%. Working on a low target growth rate is sensible. Also, you need to keep it under review. Invest and forget is not something you should be doing with investment linked mortgages.

cagey76 · 5 October 2007 at 8:21PM

dunstonh, I understand the risks involved and have considered just paying the repayment figure, and saving on top of that. I also agree that the investments need careful attention.

how do I use a IFA like yourself, how do you charge if I am going to use a fund supermarket like selftrade

dunstonh · 5 October 2007 at 10:09PM

how do I use a IFA like yourself, how do you charge if I am going to use a fund supermarket like selftrade

You wouldnt use an IFA and selftrade. IFAs have their own fund supermarkets, wraps and platforms and many of the fund supermarkets you see online are just IFAs with a website which either link into the own built system or white label a provider (IFA logo on the front end but the back end integrates with providers like cofunds or fidelity).

So, if you go DIY, you use one of the platforms designed for consumers only. If you see an IFA, the IFA will use one for their servicing in mind.

EdInvestor · 5 October 2007 at 10:59PM

Have a look at the High Yield share portfolio idea, held in a Selftrade ISA

http://www.fool.co.uk/specials/2006/specials060208.htm

The yield on the portfolio will match the interest rate on the mortgage so it's significantly less risky.The growth rate you have targeted is achievable not least because the costs are very low because you don't trade.

cheerfulcat · 6 October 2007 at 7:20AM

cagey76 wrote: »

how do I use a IFA like yourself, how do you charge if I am going to use a fund supermarket like selftrade

As dunstonh says, you wouldn't use an IFA and Selftrade; ST is a broker, dealing mostly in individual equities ( though they do offer some funds ).

I think that your 12% annual target is unrealistic - like dh I allow for 5% in my calculations, even though my actual return has been far greater.

On the whole, I'd suggest that a repayment mortgage + saving into an ISA would be safer.

cagey76 · 6 October 2007 at 8:49PM

cheers for the responses. I think I am going to go ahead and try to use the max s&s ISA allowances, paying mortgage payments when cash is spare on top of that.

I like the High Yield Idea, along with emerging amrkets and some Brazil exposure, but will want some lower risk funds to combat the higher risk of these.

Is it possible to merely buy advice from a IFA and go on to manage my own investments via selftrade ?

S+S ISA for Mortgage Repayment

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