Mortgage or ISA?

Rikrdoh

I have a First Direct offset mortgage fixed at 5.49% for 10 years on £76000. My question is should I use my mortgage money to put into an ISA at a better rate and would I be better off getting a regular saver at £300 per month at 7% or a lump sum of £3600 straight away at 6.25%?

ragingbass

Don't forget, you'll be paying tax on the 7% for the regular savings account. I'd put the money in the ISA given you can get 6.25% with HSBC or Barclays, and you'd earn a little more interest than you'd be paying on your fixed rate mortgage

gil13

I guess it depends on whether you want to lose the tax break of the ISA when you come to end of the mortgage term, if you are using the savings in the ISAs to pay off the capital. I am having the same ideas myself and I think it will be a combination of approaches that will be best, ISA's are quite important long term savings accounts and worth protecting, the stock market is a dit dodgy at the moment so might pay to sit tight and then invest when things start to recover or start a S&S ISA monthly, offsetting has it's place, so too does capital reduction. The other thing is where are interest rates going? If they do eventually get taken down then at 5.49% you are going to want to start to put more to the mortgage/or offset. There are lots of things to consider really and it will take some managing to get the best out of it. Some of the fix rate bonds are paying 7%, nets down basic rate to 5.6% - not a great gain over the 5.49% mortgage rate. However, if one of you is going to become a non-tax payer, such as stay-at-home mum then there is obviously further leverage in that situation. It is a flexible arrangement which I like, though but I can't talk in too much detail about the account itself as we don't drawdown till Oct. All the best, we went for the same deal.

StuartGMC

I would recommend that your "emergency" funds plus monies you will want to access in the year reside in your offset savings (I assume you have 3-6x income already set aside before you then place funds in the ISA?).

My home budgeting sheet includes info to show the offset equivalent interest rate which is derived from the interest charged on the capital not offset, plus that lost on the savings and current a/c which of course don't earn interest when offsetting. This will help show the benefit or otherwise (our "equivalent rate" is in the sig below).

I assume you use the credit card for all purchases each month to maximise current a/c offset each month, then pay credit card bill in full say 3-5 days ahead of due date?

Don't FD let you offset your Cash ISA? If so then it will reduce mortgage interest but if left there after mortgage is still then in a tax-free wrapper?

Remember the advantage of the offset is having the cash available if required like holiday and if you overpay as well you'll be quids in.

Use the Egg calculator to run your scenarios, I'm sure it'll help you but do remember tax on savings if they are outside the ISA.

Good luck.