Repaying mortgage vs savings

canardo

Hi,

Am in the lucky position me and my girlfriend have finally brought a house together after saving a decent deposit.

we have a mortgage with Abbey that is fixed for 2 years

at the moment we are in a good position to overpay the mortgage, however I will out line out situation

we are luckily both on good money for the midlands, I am a programmer and she is a probate solicitor.

the bulk of our savings obviously went towards the house on purchase, we do however have some left.

At the moment we are considering the following before overpaying the mortgage

taking advantage of the small amounts that can be made on the regular saving offers ie lloyds 8% on 250 a month and 500 initial deposit
and making full use of our ISA allowances, the reason being these are offering slightly higher rates than the mortgage (4.89%) and have the added bonus if and when I get made redundant (I work in IT as a programmer for boom and bust telecom companies, on the hope one of the booms maybe will make me a google millionaire :rotfl: ) we having savings to full back on whilst I look for another job, or any other unforeseen eventualities, luckily the IT market is fairly boyant in my area currently but who knows.

Anyway does it sound reasonable plan to try and keep savings of enough to pay the mortgage for 6 months then look to overpay the mortgage once our isas are full up and the banks introductry savings offers are finished

neither of us are high rate tax payers at the moment and we dont have any debt (other than the mortgage and student loans)

Robert_Sterling

I would certainly have money in Cash ISAs for a rainy day.
Since the ISA can pay more than the rate you pay on your mortgage it would be illogical not to.

jamesd

The ISAs for you and the regular savers pay more than the mortgage interest rate, so using them is a good idea. You can withdraw from regular saver accounts so you might as well use the money in them as your unemployment fund.

Longer term equities should do better than cash so using the full 7000 equity ISA allowance is a good idea if you have the money available. I'd even borrow to use it all if you could repay the borrowing within a few months and expect pay rises to make it possible to fully use it in the second year without borrowing again. It seems likely that both of you will eventually be glad of any tax protection you can get.

Yours also looks like a good case for an interest only mortgage, since you can overpay when you're on a contract and cut back to just the interest when you aren't.