ISA's versus Mortgage overpayments

davidscot

Hopefully posted this in the correct forum,just looking for advice really.
We currently pay into our individual stocks and shares ISA's each month and were wondering, in todays climbate, if it would be best to freeze these ISA's for now and use the monthly payments to overpay our mortgage for a while.
Have looked into the mortgage and overpayments are allowed.

Anyone any thoughts, comments etc.
Cheers for any help:beer:

dunstonh

We currently pay into our individual stocks and shares ISA's each month and were wondering, in todays climbate, if it would be best to freeze these ISA's for now and use the monthly payments to overpay our mortgage for a while.

Good time to be buying stocks and shares monthly. Long term potential is better now than at any point in the last 4 years.

What you do though depends on your risk profile, aims and objectives, tax position and how much your mortgage interest rate is.

Gorgeous_George

If your mortage rate is higher than your ISA rate it is numerically better to pay your mortage.

However, if the difference is marginal, it may be better to keep your ISA and use your allowance each year because, if you do not use it (or you cash an ISA in) you lose the right to that year's ISA allowance.

GG

davidscot

Mortgage interest rate is 5.45%. Not looking to take huge risks but just looking for the best way to use our assets. Maybe would be an idea to half the payments to the ISA's and use the other half to overpay mortgage no?

dunstonh

ISAs are a use it or lose it allowance. The long term gains on an ISA can outweight the short term gains on repaying the mortgage. For example, ISAs can provide a tax free income in retirement. That can save you thousands of pounds a year in tax.

Events like this happen on average every 7 years (been 8 since 1956). Last one was 6-8 years ago and the markets dropped by more then than they have this time. Things are not good but remember this is not the first time and it wont be the last. Its just been a long gap this time round and many people have not experienced it before or didnt notice it because the media didnt report it in the same way.

Gorgeous_George

There's not a lot in it mathematically.

£3,600 in a cash-ISA could earn £225 over a year at 6.25%. Paying it off your mortgage might save you £196.20. So, £28.80 in favour of the ISA.

I think mortgage rates will fall, so again, a slight leaning towards a cash-ISA (especially the fixed rate ISA that I prefer).

In the end, it is whatever you prefer. I prefer the £28.80 in my pocket.

GG

davidscot

I think were going to half the payments to ISA's and use the rest to overpay mortgage at the moment, see how things pan out.