ISA or Mortgage

double07

Hello. I am a First Direct customer and have just put 5100 into their cash ISA product.

I now regret it.

Should I have left it in their savings account and linked it to my Mortgage.

As expected the Bank don't offer any advice.

Can someone help me?

D07

opinions4u

Hi.

I would suggest providing a little more information would be wise.

1. What is the rate on the ISA?
2. What is the rate on the mortgage?
3. Is the "savings account and linked it to my Mortgage" telling us that this is an offset mortgage?
4. Are you on a mortgage product that will expire, and what will the new rate be at that time?

double07

Thanks for the prod...
The rate on the ISA is 2.65% AER (2.62% tax-free) fixed until 31 October 2011 before reverting to our standard variable rate, currently 0.20% AER (0.20% tax-free)

The offset mortgage which i have 2 years to go is
Interest rate 2.39%
Tracks the Bank of England Base Rate Plus...1.89%
Standard Variable Rate (SVR) 3.69%
The overall cost for comparison is...3.6% APR
thanks again.

opinions4u

While the rate on the ISA remains higher than the rate on the mortgage, the money is in the best in the ISA.

The situation changes as soon as the mortgage rate becomes higher than the ISA rate - then the best thing to do mathematically is to reduce the mortgage debt (or fund the offset account).

Don't forget to ensure you have a contingency fund of 3-6 months net pay in an accessible place.

EDIT: LongTermLurker makes a valid point about ISA value that could run well beyond the term of the mortgage, as long as you can retain a competitive ISA rate.

LongTermLurker

opinions4u wrote: »

While the rate on the ISA remains higher than the rate on the mortgage, the money is in the best in the ISA.

The situation changes as soon as the mortgage rate becomes higher than the ISA rate - then the best thing to do mathematically is to reduce the mortgage debt (or fund the offset account, assuming it is an offset mortgage).

I agree with the theory, however, while we're only talking fractional percentage difference on £5100, consider not necessarily aiming for the last penny of interest / mortgage savings and build up an ISA alongside your offset mortgage.

The tax free benefits of the ISA could carry on far beyond the mortgage term and are not to be sniffed at.