Cash in ISAs to pay off mortgage??

Maddens217

We've been consistently overpaying our mortgage to reduce the term, and are now in the fortunate position where it would be possible to pay off most, if not all, the mortgage by cashing in our ISAs and using most of our savings. The mortgage scheme we are currently in allows for unlimited overpayments and we are can repay the mortgage for a very small fee if we want to.
It goes against the grain to cash in the ISAs as they are the only tax-free form of saving, but with the interest rates being so low on savings, we wonder if it would make sense to pay off a debt where we are being charged interest & then continue to build up our ISAs again using the money we are currently paying off our mortgage with each month?
Our mortgage currently stands at approx £28,000 and has 15 years remaining.
Any thoughts/advice would be gratefully received.

leviathan

You want a contingency fund for those just in case moments in life.
What about offsetting? - try the calculators.

ragingbass

I guess it depends on what interest rate you're paying on your mortgage and what interest rates you're getting for your ISA's? Making up figures, but say if you were paying say 4% on your mortgage and getting 5% interest in your ISA's, then why bother to pay it off?

Dithering_Dad

Pay it off and then start rebuilding your savings. A couple can save up to £14,400 in S&S Isas, so it'd take you a minimum of 2 years to build up those savings again.

Meanwhile you will have the luxury of watching the economy "go to hell in a handcart", knowing that you're completely safe (let's face it, if the worse comes to the worse you can always find enough money to pay for food and utilities, even if it means stacking shelves or delivering free papers).

natman

Maddens217 wrote: »

We've been consistently overpaying our mortgage to reduce the term, and are now in the fortunate position where it would be possible to pay off most, if not all, the mortgage by cashing in our ISAs and using most of our savings. The mortgage scheme we are currently in allows for unlimited overpayments and we are can repay the mortgage for a very small fee if we want to.
It goes against the grain to cash in the ISAs as they are the only tax-free form of saving, but with the interest rates being so low on savings, we wonder if it would make sense to pay off a debt where we are being charged interest & then continue to build up our ISAs again using the money we are currently paying off our mortgage with each month?
Our mortgage currently stands at approx £28,000 and has 15 years remaining.
Any thoughts/advice would be gratefully received.

Hi,

We like you are in a fortunate position of having about 27k Left to pay off our mortgage and roughly have that in savings. we are always debating the best thing to do. Our decision at present is not to pay the mortgage of due to the following reasons -

We have 6 years left on the mortgage. Our MORTGAGE interest rate is now 3.5% (We are on a base rate tracker + 0.5%)
Our savings are made up of a selection of accounts all offering higher rates than this 3.5% -
ISA - 6.5% ( FIXED TILL Aug 2009)
Fix term bond 6.25%( fixed til Dec 2009)
Few other accounts all paying over 5%

In addition, and probably the main reason for not paying it off, we would like to move in 12-18 months( well now if being honest, but with all the credit crunch etc and price drops we are waiting a bit) any way
our mortgage is 27k, so if we did move to another house having paid the mortgage off, we would more than likley.
1. need a new mortgage and may not get as good a deal
2. the 27k that i had paid in the house( if i did pay off the mortgage, would of probably lost money, so my deposit would be less than if i was just to save it in the bank.

So i would ask these questions
are you going to move?? if so the 28k you have in your savings would be probably be worth less as a deposit being invested into a house that may be losing money.

These are only my thoughts, but It would be interesting to get other views!!!

Maddens217

leviathan wrote: »

You want a contingency fund for those just in case moments in life.
What about offsetting? - try the calculators.

Thanks, we've got a small amount for a rainy day, but to change our type of mortgage to an Offset type would incur big fees which wouldn't be worth our while.

Maddens217

ragingbass wrote: »

I guess it depends on what interest rate you're paying on your mortgage and what interest rates you're getting for your ISA's? Making up figures, but say if you were paying say 4% on your mortgage and getting 5% interest in your ISA's, then why bother to pay it off?

Thanks for your comments. We're currently on a fixed rate of 5.6% which ends in January for our mortgage. We'll automatically go on to a variable rate of 5.24% (currently). We were caught up in the Icesave fiasco where we had ISAs & savings tied up. Money should be released soon, but it seems like the best rate for an ISA isnt much better than about 4.5 - 5.00%, & much less for ordinary savings, so we'll be getting less for our money than we'll be paying on our mortgage.

Maddens217

Dithering_Dad wrote: »

Pay it off and then start rebuilding your savings. A couple can save up to £14,400 in S&S Isas, so it'd take you a minimum of 2 years to build up those savings again.

Meanwhile you will have the luxury of watching the economy "go to hell in a handcart", knowing that you're completely safe (let's face it, if the worse comes to the worse you can always find enough money to pay for food and utilities, even if it means stacking shelves or delivering free papers).

Great reply, short & to the point and makes alot of sense. Seems like paying off the mortgage could be the way to go at the moment, or at least paying off most of it. Thanks for the advice!

Maddens217

natman wrote: »

Hi,

We like you are in a fortunate position of having about 27k Left to pay off our mortgage and roughly have that in savings. we are always debating the best thing to do. Our decision at present is not to pay the mortgage of due to the following reasons -

We have 6 years left on the mortgage. Our MORTGAGE interest rate is now 3.5% (We are on a base rate tracker + 0.5%)
Our savings are made up of a selection of accounts all offering higher rates than this 3.5% -
ISA - 6.5% ( FIXED TILL Aug 2009)
Fix term bond 6.25%( fixed til Dec 2009)
Few other accounts all paying over 5%

In addition, and probably the main reason for not paying it off, we would like to move in 12-18 months( well now if being honest, but with all the credit crunch etc and price drops we are waiting a bit) any way
our mortgage is 27k, so if we did move to another house having paid the mortgage off, we would more than likley.
1. need a new mortgage and may not get as good a deal
2. the 27k that i had paid in the house( if i did pay off the mortgage, would of probably lost money, so my deposit would be less than if i was just to save it in the bank.

So i would ask these questions
are you going to move?? if so the 28k you have in your savings would be probably be worth less as a deposit being invested into a house that may be losing money.

These are only my thoughts, but It would be interesting to get other views!!!

Thanks for taking the time to do such a lengthy reply. Our rates differ alot from yours in that we'll soon be paying 5.24% on our mortgage, but our savings rates are a bit lower, partly because we had tied up quite alot of money in Icesave, both in ISAs & fixed-rate savings. So it would seem better to pay off at least some of the mortgage to save on the interest we'll ultimately be paying on it.

Recently had a loft conversion instead of moving, so unlikely to be needing another mortgage short-term.
Ant further comments welcome.

Wookey

I cleared my mortgage about 6 months ago, i had 26k owing and 20 years to pay it. With savings rates at what they where then, it would have taken me just over 7 1/2 years to recoup the outlay on clearing the mortgage by paying into a regular saver account, with savings interest rates at there current levels its gonna be about 8 years. I am determined to actually have it saved up in a lot less time, but having turned self employed and with the current economic worries which is affecting everyone i can say that not having to worry about mortgage payments is a very nice feeling. I've one other debt which is (car loan) fixed and so paying it of earlier wouldn't be of any benefit to me, it ends in april.

If you feel you are secure enough (work, health and in family etc) and aren't planning on needing any huge sums soon then clear it, by paying back into any decent savings account you can quickly regain a cash stash, more so if offsetting isn't a realistic alternative.

gazza1401

Maddens217 wrote: »

Thanks for taking the time to do such a lengthy reply. Our rates differ alot from yours in that we'll soon be paying 5.24% on our mortgage, but our savings rates are a bit lower, partly because we had tied up quite alot of money in Icesave, both in ISAs & fixed-rate savings. So it would seem better to pay off at least some of the mortgage to save on the interest we'll ultimately be paying on it.

Recently had a loft conversion instead of moving, so unlikely to be needing another mortgage short-term.
Ant further comments welcome.

I have just received the payment from the FSCS after the Icesave collapse :T. I have decided (mainly due to interest rates vs. mortgage rate) to pay off my mortgage with the capital. Suggest you do the same (from what you are saying). Just think "I am now mortgage free...." :beer: