Overpaying - can someone advise please?

gallygirl

FinnMcCool wrote: »

The 2k we have in savings is in my ISA and other half doesn't have an ISA or any savings. What we have been doing so far is ploughing everything into the mortgage. This site says you should never save in and ISA and then take the money back out as then you are taxed on it. If we opened up an ISA in other half's name and saved the money there, when the interest rates changed and it made more sense to put money into the mortgage, would it be a good idea to take it out and put it into the mortgage?

Or should we just save in an ordinary savings account? I am trying to get to grip with doing the best thing financially for us, but I struggle with understanding finance!

You can only put £3,600 (£5,100 form April) into a cash ISA each year. Once you take money out you cannot put it back, or at least only put back up to a total of £3,600 (e.g. if you have 3k in there now and withdraw 1k you could only put £600 back in, taking the total invested to £3,600). So ISAs are no good for chopping about with savings.

However, if you are saving long term they are good. What will happen to interest rates in the next few years (current thinking is they will stay low :T). What will happen to your personal situation? Do you want long term savings, or are you more interested in paying the mortgage off? Only you can answer these.

Personally, I would save the maximum in ISA's in both yours & OH's name. Ideally you would never touch this money. Over and above that I would save in savings account rather than OP mortgage until such time as net interest from savings exceeds mortgage rate. Then pay the ordinary savings into mortgage.

2 points to note though - if redundancy is on the cards bear in mind that your mortgage is flexible so presumably if you have overaid you could ask for it back? Secondly, when people talk about a few months savings they are generally talking about saving a few montsh salary, not just mortgage payments, so that all bills would be covered and you would have money to live on.

Good luck with whatever you decide :T

FinnMcCool_2

Many, Many Thanks for your replies!

Also for the worked examples - it definitely makes things easier to understand for me!

Going to discuss it all with other half tonight and look to opening up an ISA and also another savings account :-) Then, when interest rates are no longer in favour - will put all the money into the mortgage.

Thanks again for all the wonderful advice - you guys are super-helpful!

WaxiesDargle

Finn

If your savings give you 3% and you mortgage charges you 0.6%.. then save

dimbo61

you should save up a good emergency fund in ISA,s of about 6 months of income!
Now to get a mortgage of £185,000 I think you should save at least £15,000
Once you have over £16,000 in savings if you did lose your job the benefits people expect you to live off your savings for some time !!!!
£15k would give you peace of mind and bargaining power when you come to replace the car/new kitchen/ new bathroom CASH not finance!!!!

Dilfred

what about money in previous years isa's?

I can see where you are going with respect to interest on isa's, regular savers etc. today, however what about previous isa's? Should the money be left in them, or moved out into something else?

I have a nationwide cash isa with 5grand or so in it from a few years back, it is now currently earning 0.25% gross
http://www.nationwide.co.uk/savings/cash_isa/cash-isa.htm

Should I leave it there as it was a quota used up some years ago, move it to another new higher rate saving/isa, or overpay?
I suppose the question is, when should you withdraw a cash free sum that is not earning much interest at the moment?

littlemrtinkle

you dont withdraw the money you must fill out a isa transfer form

dimbo61

You need to move your ISA,s to the best paying ISA each year
Some allow transfers and some dont
Last year I was getting 6% from LLOYDSTSB then we moved to Natwest to get 3% this year!!!
shop round

gallygirl

Dilfred if you have not used this year's cash ISA allowance you should open a new one that accepts transfers in. The financial pages of decent papers on Sat & Sun list the best - possibly https://www.moneysupermarket.com or https://www.thisismoney.co.uk also cover transfers in?

Once you close an ISA you lose the tax free status. If you have already got a cash ISA this year that does not accept transfers in you have 2 choices.
1. Leave at 0.25% for this tax year. Look for a decent ISA next tax year that does accept transfers in.
2. Forego tax free status & close. Invest money in a best rated account (check the 2 web sites above). At 3.25%, after tax that would be 2.6% net, far above your 0.25% ISA. You could then use this to put into a decent ISA at the start of the next year (max of £5,100), but couldn't add to it.

Hope this helps.