4.29% fixed 2 years ? Shd I use Isa Money

Jasmin

My offer of a house has finally been accepted and now am in dilema.

I have a found a good mortgage rate 4.29 % fixed for two years but have a question.

Should I put my taxfree savings down as deposit and take out a £85000 mortagage or should I keep my tax free savings i.e Isa and Tessa and increase my mortage by £20000?

I will be very grateful for advise as am not sure waht to do?

Rikki

Personally I would keep the ISA's and have the larger mortgage. You have the mortgage fixed for two years so you know what your monthly payments will be and you still have savings. If at the end of the two years when you look around for your next mortgage deal you can use the savings then or hopefully keep them as savings again.
Alot can happen in two years the savings are there for emergencies.

Joe_Bloggs

@Jasmin when you say found do you mean accepted for ? Is your mortgage for a modest proportion of the property's value ? If not then a significant deposit (5-10%+) or existing equity in a property to be sold/remortgaged is often required to get the best mortgage rates. In assuming the latter case then hold on to your investments if their net percentage returns are greater that your mortgage interest rate.
Good luck with your property venture. Post more facts, if you want, so that other, more experienced contributers can chip in with more pertinent information . You might also try the Mortgages & Endowments board aswell.
J_B. (Congrats on the 20K!)

Jasmin

The mortgage will be about 44% of the house value. The 20k was a nest egg for a deposit. But now that the rate is 4.29% I keep thinking I will loose out as I will not be able to put my money into taxfree savings again i.e it will take several years.

I am a high rate tax payer ( only just) and savings account then seem pointless. Taxfree always are more attractive but then at the penalty of a higher mortagage.

I am a first time buyer and have been saving years for a good deposit whilst living with parents. I think the my Tessa account with A&L only gives me 3.75% .

Joe_Bloggs

I do not want to tell you what to do. The ISA tax haven is clearly very important to higher rate tax payers unlike myself. What does the 4.29% mortgage rate decay into ? Has a survey on the property been carried out by you/for your mortgage lender. Are you free to chose other lenders ?
One umbella for higher rate tax payers is an offset mortgage. You must have significant savings building up or large irregular savings to benefit. The ultimate benefit is savings equaling mortgage and no net interest is paid. Your savings in offset accounts do not get taxed on interest paid to them as it is not paid. You only pay interest on (mortgage balance - offset account total) to your mortgage lender. The main drawback is only a few offset rates are competetive. You have to work out what you could get for your savings given the alternatives. You have to do the arithmetic to see which route will benefit you the most.
J_B.

tomstickland

The ISAs are hopefully earning you 5% but meanwhile you'll be paying 4.3% on the same amount of money on the mortgage. Personally I'd keep the ISAs.

Jasmin

Joe_Bloggs wrote:

I do not want to tell you what to do. The ISA tax haven is clearly very important to higher rate tax payers unlike myself. What does the 4.29% mortgage rate decay into ? Has a survey on the property been carried out by you/for your mortgage lender. Are you free to chose other lenders ?
One umbella for higher rate tax payers is an offset mortgage. You must have significant savings building up or large irregular savings to benefit. The ultimate benefit is savings equaling mortgage and no net interest is paid. Your savings in offset accounts do not get taxed on interest paid to them as it is not paid. You only pay interest on (mortgage balance - offset account total) to your mortgage lender. The main drawback is only a few offset rates are competetive. You have to work out what you could get for your savings given the alternatives. You have to do the arithmetic to see which route will benefit you the most.
J_B.

The interest rate will be 4.29% til Apl 2008 and the revert back to the std which is currently 5.85%. But as there is no tie in you can change.

The survey price quoted £200 is the std valuation carried out by Brittania for the mortagage. Other's o.e Halifax quoted £340... it all adds up.

Thanks for your help

Jasmin

tomstickland wrote:

The ISAs are hopefully earning you 5% but meanwhile you'll be paying 4.3% on the same amount of money on the mortgage. Personally I'd keep the ISAs.

Thanks for your comments, I think you have all confirmed what I rhought all along...... Tax Free savings to be kept and incraese mortage as the higher interest rate in the savings should offset mortgage interest.


Thanks once again.