savings vs mortgage overpayment

Andyf33

I am in the lucky position of having approx 900/month available for savings/mortgage overpayments/investments. I currently pay 500/month into cash ISA's (5.5% interest rate), 200/month into unit trust and 200/month mortgage overpayment. I have approx 4 months income in cash ISA and 2 months in unit trust.

I have been thinking that in the current climate would it better to adjust this and pay more off the mortgage?

I have a 165k mortgage (2 x annual income, approx 65% LTV) 5 year fix at 5.49% with 4 years left to run on the fixed rate and overpay 200/month currently.

Any views?
Thanks

getmore4less

I would up the cash ISA to the max £600pm.(2*£3600)

Review the unit trust charges and what other equity based savings you have ie: pensions.

If the unit trust does not add up either overpay the mortgage or if you can find savings accounts that pay more than the mortgage(regular savers are in that ball park) then use them, pay off the mortgage(to the max without penalties) when they run out.

If one of you is a low rate taxpayer the regular savers will likely pay more than the mortgage.

Long term if you have any pension lump sums, consider not paying down the mortgage once that value is reached and building up savings/investments using your full ISA allowance once the cash ISA is big enough.

Tax efficient investement of a large lump sum is not easy.

Andyf33

thanks

i am 33 and a higher rate tax payer (salary of 80k). my wife is a stay at home mum so pays no tax at all. i have a final salary company pension hopefully paying out about 100k lump sum in todays money when i retire.

i guess this query is moving from the original topic onto tax efficient saving/investments.

Jonbvn

Andyf33 wrote: »

thanks

i am 33 and a higher rate tax payer (salary of 80k). my wife is a stay at home mum so pays no tax at all. i have a final salary company pension hopefully paying out about 100k lump sum in todays money when i retire.

i guess this query is moving from the original topic onto tax efficient saving/investments.

Hi,

Me & OH are in exactly the same position as you (wife non-taxpayer). We are putting all our spare money into a savings account in my wife's sole name, and have completed a form R85 to get interest tax-free. With the GBP6k threshold for income tax, we can accumulate approximately 90k in savings (non-ISA), before having to pay tax on the interest (assuming 6%+ interest rate). Note that the IR rate on the savings is approximately 1% higher than the mortgage rate.

BTW, our ISA's are full for this year. We transfer money from savings to our ISA's at the start of each tax year.