keep isa or pay chunk of mortgage

tomaz64

Hi all
Looking for some advice regarding mortgage.At the mo i owe £28000 mort which has 13 years to run on northern rock flexible mort at 5.19% fixed for 2 years.Now due to some serious mse saving ive got £16000 in isa and £5000 building soc account.Do you think its better to leave isa alone or hammer the mortgage with it.
Many thanks

A_Nice_Englishman

What interest rates are you getting on the ISA and building soc account?
Are there any charges/penalties associated with part-repaying the mortgage?

The interest on the building society is taxable so I would have thought it was better to use that to repay the mortgage before touching the ISA

Joe_Bloggs

Interest on a building society savings account is taxable according to income . I doubt that interest avoided by overpaying a mortgage is taxable. Penalties for paying; too much, too little or too often may apply.
J_B.

tomaz64

hi isa is 4.30% bs account 2.30%

A_Nice_Englishman

Well if it was me I would keep £5000 in the ISA (perhaps moving it to another provider as I'm not sure 4.3% is very competetive) as a safety net and pay £16000 off the mortgage assuming you can do so without penalty.

One of the best days of my life was when I walked iri to the bank, asked how much I owed on my mortgage and wrote out a cheque for that amount!

ManAtHome

Both are pretty poor interest rates - as ANE says, keep the ISA (once it's gone it's gone, but check the best-buys and the stickies about moving ISAs), then use most of the B/Soc savings to reduce the mortgage (check for restrictions and penalties on the mortgage first).

ps ANE had the numbers the wrong way round but the advice was spot on.

A_Nice_Englishman

ManAtHome wrote:

ps ANE had the numbers the wrong way round but the advice was spot on.

No I did mean I would have used £11000 of the ISA and all the Bdg Soc to pay off part of the mortgage (subject to penalties etc). But that is just what I'd do. Others would want to pay off more or less.

ManAtHome

Sorry, thought you typo'd the numbers (not that I ever do anything like that...).

I'd hang onto the ISA (at a decent rate) as the difference between interest in and out would be marginal, then when/if mortgage eventually paid out would have a reasonable pot of tax-free savings. It's all guessing at what might happen though - future govt may increase/reduce/scrap tax-free stuff.

A_Nice_Englishman

What you say makes perfect financial sense. For me, though, the thought of being £16K nearer to mortgage-free would override that!

Agree about the guesswork and future Government policy too

gallygirl

If it was me I'd pay it ALL off the mortgage (assuming no penalties) then hammer the remaining 7k asap. But I am a woman on a mission....and have been known to pay less than £1 in change into my offset account :rolleyes: .

I was going to say I can't imagine what it would be like to be mortgage free - but actually I can, which is what keeps me going.

I'd keep an interest free credit card for any emergencies.

cupid_s

i am (will) be in a similar situation next year. My mortgage is fixed so I can only overpay £86 per month. Which I am currently setting up to do now (i phoned HSBC three times to ask if i could overpay and the first two times i would told i couldn't overpay anything so i'm annoyed i could have been paying this £86 for the last 2 years).
By the time the mortgage becomes unfixed in 11 months time we should have saved about 15k to pay off it. our mortgage is currently 68k. This money will be in ISAs and savings (we don't pay tax on our interest at the moment but wil start doing so next year sometime). However when the mortgage becomes unfixed we will increase our monthly payments by just over £1000 to £1450 a month. And hopefully we will pay our mortgage off very quickly.
But after we have no mortgage to pay we invisage that we will save quite a bit of money each year (more than the ISA allowance) for things like kids education etc. And I was thinking if i left the money in the ISAs and took a bit longer to pay off the mortgage then when we aren't paying a mortgage we'll have a lot of money in ISAs and wont be paying tax on the interest.
Would this be stupid when i could pay a lump sum off? See i'm just thinking that that money will save us paying tax on savings for as long as we have the ISA really which could be years and years. I dont know if the money we'd save in the interest would be negated by how much more we have to pay on the mortgage.
Help please...