Urgent Savings Advice Please!

Zero7_2

Hi,

We are in a bit of a dilema, and I'm in desperate need of advice. I'll try and keep it fairly simple.

We have a £220k Interest only mortgage on our house which is valued at £430k. We purchased this house with a view to selling on within a 1.5 years, (hence the interest only mortgage which was fixed at 4.95% for 2 years) however our circumstances have changed and we want to stay in this house for at least 7-10 years.

We are both in a our mid 30's and I work as a contracotr and earn over £100 per year, my wife earns £25k, we eat well and spend money on things we like.

Our interest only mortgage has come to the end of 2 year deal and now we are paying an extra £120 per month as it has gone over bae rate.

We have around £20k in a high interest account and around £13k in Cash and Stocks and Shares ISA's with the Halifax.

We decided to get a repayment mortage and use these savings to pay off some of the capital, i.e. borrow £190k as a repayment mortgage.

We could also afford to pay of large chunks every 6 months or so, perhaps £10 every 6 months.

I decided to have a meeting with my financial advisor from Halifax and spent 3 hours with him yesterday, his thought process was totally different to mine. He said that I should stick to a repayment mortgage and put my extra money and monthly payments into topping up our ISA's and then take out some further investments (CIP) and make my money work for me at a much higher rate of interest than what I would be paying on my borrowings.

Our Cash ISA's have grown an average of 19% year on year over the last two years, O.K, they are classed as high risk but only 20% is in the far east.

Our ultimate goal is to be Mortgage free in about 5-7 years, with the money coming in and spending a little less (we have everything we need in life) I think this is possible, however my mind keeps saying just pay chunks of the mortgage, £10k here and £10k there.

But the saving options seems more tempting, which way will I pay my mortgage off quicker? In fact, do I need to pay my mortgage off at all if my income could earn my a massive high rate of interest?

Please help!!!

DocProc

Well, it would be nice not to have a mortgage, wouldn't it?

But there again, this 'buying a house thingy'...

Q. What is that all about?

A. Well, amongst other things, it is about wealth creation. You are buying an appreciating asset and using LEVERAGE.

This leverage stuff is the bit you don't really understand well enough. It's also called 'gearing' in the USA. This is where you and your FSA differ. He does understand it. And to him your mortgage payments are almost a pittance.

If your house goes up, say 10%, in the next two years, then your £210k equity (£430k-£220k) will generate a tax free growth on paper of £43k, won't it. This equates to nearly 20.5% over 2 years.

Now let's start deducting some mortgage payments off that sum, shall we?

Nah! No need to do it, is there?

Oh, sorry! I've forgotten to complicate the required calculation with the money you would be putting into an ISA and other investments if you weren't paying out on mortgage payments.

True! I left it out on purpose. Perhaps it's actually irrelevant? Perhaps your FSA is right?

jonesMUFCforever

Can the financial adviser GUARANTEE that the investments that he is advising you to go into will do better than your mortgage rate?
Have you thought he could be filling his boots with commission at your expense.
In all probability when the s**t hits the fan he will be nowhere to be seen!
Just my opinion.

dunstonh

I decided to have a meeting with my financial advisor from Halifax and spent 3 hours with him yesterday, his thought process was totally different to mine. He said that I should stick to a repayment mortgage and put my extra money and monthly payments into topping up our ISA's and then take out some further investments (CIP) and make my money work for me at a much higher rate of interest than what I would be paying on my borrowings.

He's a bank salesman. What do you expect? He is not authorised to recommend the sort of portfolio you would need to do what he suggests. His product range isnt good enough to do it either.

The concept is sound but you cant do it properly with Halifax products. Its also about potential and there are no guarantees.

Our Cash ISA's have grown an average of 19% year on year over the last two years, O.K, they are classed as high risk but only 20% is in the far east.

Cash ISA dont invest in far east. Although if you only managed 19% p.a. over the last 2 years in a portfolio containing far east funds, then that is a worry.

cloud_dog

Zero7 wrote:

We have a £220k Interest only mortgage on our house which is valued at £430k. We purchased this house with a view to selling on within a 1.5 years, (hence the interest only mortgage which was fixed at 4.95% for 2 years) however our circumstances have changed and we want to stay in this house for at least 7-10 years.

We are both in a our mid 30's and I work as a contracotr and earn over £100 per year, my wife earns £25k, we eat well and spend money on things we like.

Our interest only mortgage has come to the end of 2 year deal and now we are paying an extra £120 per month as it has gone over bae rate.

So what interest are you paying currently? The forst thing to do is to identify anothe product so that you are not stuck on the lenders SVR.

You need to identify what your goals are, i.e. pay off the mortgage, or have investments, or a bit of both. From what you say below it seems like you want to pay off your mortgage as soon as you can.

We have around £20k in a high interest account and around £13k in Cash and Stocks and Shares ISA's with the Halifax.

We decided to get a repayment mortage and use these savings to pay off some of the capital, i.e. borrow £190k as a repayment mortgage.

We could also afford to pay of large chunks every 6 months or so, perhaps £10 every 6 months.

In which case you need a mortgage deal that allows this flexibility.

I decided to have a meeting with my financial advisor from Halifax and spent 3 hours with him yesterday, his thought process was totally different to mine. He said that I should stick to a repayment mortgage and put my extra money and monthly payments into topping up our ISA's and then take out some further investments (CIP) and make my money work for me at a much higher rate of interest than what I would be paying on my borrowings.

This doesn't equate with your desired goal - unless you are not sure if what you want to do?

Our Cash ISA's have grown an average of 19% year on year over the last two years, O.K, they are classed as high risk but only 20% is in the far east.

No, cash ISA's will groy by about 5%, depending on the provider. You must have a Stocks and Shares ISA to have acheived this level of return. Again, the choice between investment return or paying off your mortgage comes down to what you want to acheive. Having said that it is always useful having a pot of money as a fallback position, in case of emergencies (car accident, laid up in hospital for 6 months. Not nice to think of but you have to do it)

Our ultimate goal is to be Mortgage free in about 5-7 years, with the money coming in and spending a little less (we have everything we need in life) I think this is possible, however my mind keeps saying just pay chunks of the mortgage, £10k here and £10k there.

This is the main question. Is this your primary goal of not. Most people are not as finacially fortunate as yourself and so have to settle for a mixture of overpaying the mortgage with saving / investing some.

But the saving options seems more tempting, which way will I pay my mortgage off quicker? In fact, do I need to pay my mortgage off at all if my income could earn my a massive high rate of interest?

Please help!!!

The easiest, and most sure thing I can offer is that with investments there is risk, the higher the return the higher the risk, with repaying/overpaying the mortgage there is certainty.

No one on this board can really advise you what to do, you need to identify your main goals and go from their. It might be that you decide to go 50/50 or 60/40 to overpay your mortgage or invest.

The synic in me thinks the adviser saw the word **COMMISSION** on offering investment products rather than repaying the mortgage.

cloud_dog

Zero7_2

Wow folks, thanks for all the posts. This really is a minefield for me. I want to clear my mortgage, that's priority, there is nothing like owning your home and been 'free'.

I'm sure the FSa from Halifax was seeing the $$ before his eye's. My growth of 19% was on stocks and shares ISA's he said it was 32+% but that was over two years.

I know there is risk to investments, but the growth over the last few years has got me thinking. Now I'll try and keep it simple. Which is going to work best for me over say 5 years.

1. Get a repayment mortgage @ 4.95 for 16 years on £200k and pay off £1500 per month and when I can just pay of big chunks over the next 5-7 years to reduce it to a small ammount.

2. Get a interest only mortgage @ 4.95 on £200k and pay £850 per month, the money between the two mortgages could be invested into Stocks and Shares ISA's and then use my 'big' chunks to invest further.

Which option would provide the quickest method of 'mortgage free life'. I would go for medium-risk investment.

Please keep it simple, i'm a bit think, god knows how I earn £500 per day.;)

Sillychuckie

err. I don't suppose the company you work for is hiring, is it?
£500 a day would be rather useful.

dunstonh

Which option would provide the quickest method of 'mortgage free life'. I would go for medium-risk investment.

No-one knows. Its a total crystal ball job. One option guarantees repayment of the mortgage. The other one uses investment potential which could result in significant surplus but could result in a shortfall.

If you plan to use the Halifax for your investing, then forget it and go with repayment. If you plan to use proper investments and accept the risk that goes with investing and build a proper portfolio, then its certainly possible that it could pay more.

Who is the far east ISA with? At 19% pa. average over 2 years, its quite a bit below sector average.

Debt_Free_Chick

Zero7 wrote:

Which option would provide the quickest method of 'mortgage free life'. I would go for medium-risk investment.

The only option that guarantees that your mortgage will actually be paid off is (1). With this option you are paying off the mortgage.

With option (2) you are investing with no guarantee that you will ever amass sufficient capital to pay off the mortgage. And if you did, you'd have CGT to think about, for any investments outside an ISA.

Zero7_2

dunstonh wrote:

If you plan to use the Halifax for your investing, then forget it and go with repayment. If you plan to use proper investments and accept the risk that goes with investing and build a proper portfolio, then its certainly possible that it could pay more.

Who is the far east ISA with? At 19% pa. average over 2 years, its quite a bit below sector average.

Could you please be so kind and offer me alterntatives to the 'Halifax' investment plans, something that will offer me greater gains. We are willing to take risk on this saving plan as we have decided to go for the repayment mortgage and any surplus money will be invested into Stocks and Shares savings plans.

Thanks for everyones input and help.

dunstonh

Banks and building societies generally offer more expensive products and poor performing funds when compared to the more professional fund houses.

Tied agents (your Halifax salesman) can only offer their own product range. Plus tied agents are not allowed to recommend funds outside of your risk rating and cannot recommend funds where more than one exists in that risk rating. The choice is put to you (or more commonly you are not given the choice but put in the default fund but documented that you chose it). This makes tied agents totally unsuitable to do what you are being told to do.

There are about 7000 alternatives out there and a range of those suitable to your needs and goals could be selected by any IFA (those on new model basis would be better) after they have ascertained your risk profile and situation. Alternatively you can do your own research and take a punt yourself.

With investments, no-one can pick the best fund(s) of the next 5 years. We just dont know. However, you can pick the funds from the fund houses and managers who have a far better track record than the banks and in a decent diversified portfolio, you give yourself a much better chance.