Pay off mortgage or save in ISA?

Meloddy

Is it best to save in a cash ISA to boost my pension which is sadly not going to be that much (£3k a year is all I can afford to save) or use the money to make extra payments to my mortgage so I pay it off earlier?

I hope someone can give me some advice here, not sure if this is the right forum or thread.....

villain

In very simple terms, look at the interest rate you are paying on your mortgage and the interest rate on the cash ISA. Put your surplus cash in the one which has the highest interest rate.

The effective rate of return on paying money into your mortgage is equal to the rate you are paying on it

Some assumptions/points to consider:

there are no penalties involved for paying lump sums into your mortgage and the mortgage has a "daily interest calculation"
You have a decent "emergency fund" in a deposit account or similar
Interest rates on your mortgage/isa might change.

You could always do a bit of both!


What´s so wrong about using a Pension Plan to help fund your Retirement Income?

Meloddy

I don't know anything about pension plans. I pay into a pension scheme at work but won't have paid in for enough years to get enough to live on when I retire.

Are pension plans safe? Can you take any money out if you need to once you have paid it in? How do they work? How do you get one?

Appreciate your help.

Ian_W

Are pension plans safe? Can you take any money out if you need to once you have paid it in? How do they work? How do you get one?

Hi Mel,
Brief answers:
1. Pretty safe in terms of losing your shirt but they're invested in the stock market so there is risk on capital growth and some are better than others.
2. No. You're locked with some exceptions until reirement.
3. You pay money in tax free, it's invested over a long period and hopefully grows, when you retire you can take up to a quarter tax free as a lump the rest is paid as a pension taxed.
4. Really you need to see an IFA but first you should find out details of your works scheme. If your employer contributes that is good and you may be better if it is a good scheme paying more into it - there again you might not.

On your initial question I totally agree with villain's response, particularly important is that you have some cash savings as a "rainy day" fund best place for those, if you haven't used up your allowance is in an ISA because the earnings are tax free.

HTH & BoL.