increase op fund or isa?

clarew

ok, gonna be made redundant after 10yrs of nhs service (and i mean at the hands on level!):mad: . So....est 7/8k coming my way, (having been living of 1 salary anyway at the mo and had intended to do so for another couple of years, due to little ones at home), so my question is...

....current mgage payment=£1086.69 Currently pay £1126 plus average of £40-£50 as 'one off' op's. Fixed with n/wide at 5.18%

...do i max out me and oh isa's (low paying obviously at the mo) or stick it in the m/gage pot in the £500 per month drip feed (minus our regular op)? on the basis that we are saving money that way temporarily and that i can withdraw it as necesary?

(background info-no other savings more than 1k. good credit history, mortgage has 17yrs to run to term, although we are 19months ahead due to op so far, fixed rate ends oct 2011)

would be interested in any opinions,
thanks all.

StuartGMC

I would strongly recommend you have 6months outgoings available in savings for an emergency fund, which I guess will consume all of the amount you are receiving?

I assume you have a fully detailed household budgeting spreadsheet or software so you know your true costs rather than estimates already? Consider that if you don't have an emergency fund and just two events happen unexpectedly, if you need to borrow the money it will be at a higher interest rate as a loan;

Replacement car, say, £5000 (old but reliable?)
New boiler, £1500
New oven £300
New washing machine £300
.... just a few items which would "need" to be replaced quickly, and if you have the savings you won't be taking on another debt in addition to the mortgage.

However, you may take a view of likelihood of something, or a combination of items, costing more than £4000 is small, and choose to save £4000 and put £4000 via OP into the mortgage?

Hope that helps with the discussion and consideration of planning?
Best wishes however with family and finances etc.

clarew

Thanks Stuart, yep i have all the spreadsheets thanks to you and others! Car is a 1 year old people carrier so should last us lots of years hopefully. Got a new w/machine and tumble drier (i know not mse-but 4kids in house!) last year too, and boiler 4 years old but serviced regularly.

I just wondered that as i can withdraw my overpayment pot from nationwide in 2-3 days with no penalty (apart from interest going up) would it be more efficent to have this money saving us the 5.18% interest on 7/8k as opposed to earning around 2% tax free in an isa?

i suppose the sensible head says isa and leave it there, see the money as an unexpected bonus, and carry on living on 1 salary like we have been doing anyway. But the 'desperate to reduce the mortgage' head says overpay it and its there if i need it back. Damn this mgage overpayments for being so addictive....!

StuartGMC

Clare
If you can draw upon it then putting it against the mortgage would be my choice for say, £6k giving you a total immediate cash supply of £3k.

ISAs would of course have the benefit of rolling up year-on-year but that only helps if you don't call on the money, and as you note the return would be less than saving on the mortgage.

Good luck