Use my ISA money or take out a loan?

freaksaver

Hi Guys

After spending 3 hours reading this website my head hurts!

Can anyone please offer advise!!

I have an ISA with Royal London (Stocks and Shares - European Growth Trust) which now has a balance of around £9000.

I have been putting £100 per month in for the past 7 years however now I need around £10000 for home improvements.

I was told that it would take around 5 years to start to see a return on this money and only in the past year has it started to make me money.

I also overpay my morgage by £50 per month!

My dilemma now is Do I keep the money in and hope for a good return and get a loan/remorgage for the £10000 (I had a quote of around £78 extra per month and as I already over pay £50 on my morgage I wouldnt really feel a difference) or do I use my ISA money and start putting the £100 (which I currently put in anyway) plus the £78 (which we were prepared to pay extra for the mortgage), back into my ISA to get me up to the £10000 mark again.

This would mean that instead of paying the £10000 back over 17 years, I would have it back in my ISA in just 4 and a half years! -

I dont know how to work out how much I would loose out on if I take my money out from where it is now!!!

I hope this makes sense to someone who can help?

whambamboo

freaksaver wrote:

Hi Guys

After spending 3 hours reading this website my head hurts!

Can anyone please offer advise!!

I have an ISA with Royal London (Stocks and Shares - European Growth Trust) which now has a balance of around £9000.

I have been putting £100 per month in for the past 7 years however now I need around £10000 for home improvements.

I was told that it would take around 5 years to start to see a return on this money and only in the past year has it started to make me money.

Are you sure about this?

You've invested £8400 (7 years * 12 * 100), but only have £9,000?

It doesn't look like it's done that badly:

http://www.trustnet.com/ut/funds/chart.asp?unit=RLEUG

although it's hardly a brilliant performer. In particular, with monthly savings, you'll have had much more invested in the last 42 months or so, when it's been rising, so the growth will have been more significant relatively.

Who advised you to buy it ? It would be much better to have a range of funds than just this one, as you've no way of knowing whether it will be the best performer, and you're putting all your eggs in one fund, in one particular sector. It shouldn't take 5 years to show a return necessarily - it's just that you can get short-term falls, and you need to be looking at at least 5 years to be surer that the rises will outweight the falls.

My dilemma now is Do I keep the money in and hope for a good return and get a loan/remorgage for the £10000 (I had a quote of around £78 extra per month and as I already over pay £50 on my morgage I wouldnt really feel a difference) or do I use my ISA money and start putting the £100 (which I currently put in anyway) plus the £78 (which we were prepared to pay extra for the mortgage), back into my ISA to get me up to the £10000 mark again.

This would mean that instead of paying the £10000 back over 17 years, I would have it back in my ISA in just 4 and a half years! -

£78/month is a meaningless piece of information. How much is the total repaid and what is the interest rate? Are there any fees? Is it a loan or a remortgage?

If the debt is cheap, it might well be better for you to keep the money inside the tax-free ISA wrapper: it depends on the likely performance of your investment compared to the interest cost.

Market_Oracle

Youve put in £8,400 over 7 years and its only worth £9000 ??? 5% per annum on £100 per month would have yeilded about £10,150.

That tells you that they are a load of rubbish at managing your money so get out, instead of borrowing.

Your money has also lost value due to inflation so your actually down in real terms.

Just get out of that garbage before you come back in 7 years time and tell a similar story.

johnmoney05

well...you better off deposit in some of the regular saver accounts which pay around 8%-10% interest.
I invested my own shares which provided me more than average 20% yearly for the last two years. Well, some of my shares do drop a bit.

Optimist

I agree with the above its a dog you have invested in. My personal view would be to use that money to do your home improvements but thats is because I dislike going into debt. If you don't want to do your own stocks and shares ISA you might like to look at Alliance investment trust or Rensburg UK Select Growth Trust. I make no recommendation for either.

margaretclare

It's a good general principle to remember: if you're paying out more in interest on a loan than you're gaining in interest on savings, then you should use savings instead of a loan!

This was one of those 'lightbulb' ideas that my DH managed to get through my head a few years ago. Never borrow while saving at the same time, because you'll always pay out more in interest on the loan than you're getting on your savings.

HTH

Margaret

Bisoy

I would agree with the above poster. I would rather use my savings and not to be in debt. You might have used your savings but whatever take home pay you'll get after that is your consolation that you're not paying extra apart from paying your mortgage and other household bills. Then you could start focussing on better investment or perhaps building your savings using your cash ISA to start with but not if you have already one this year. But ICICI and ICESAVE are good options to consider.

EdInvestor

freaksaver wrote:

I have an ISA with Royal London (Stocks and Shares - European Growth Trust) which now has a balance of around £9000.

This is a midddling pergformer in its class( rated 48/90 by Citywire).We have had the worst stockmarket crash in a generation between 2000-2003, so it's not surprising performance has been ordinary.Those who invested in trackers are still making losses.

But as mentioned, it's not advisable to have all money in only one fund.What I would do with this is move the ISA over to a discount broker such as https://www.h-l.co.uk or https://www.selftrade.co.uk and then reinvest the money in a selection of at least 4 or 5 different funds, preferably of the high performance variety

Don't close the ISA, if you do this, you lose the allowance forever, very bad Just move it and get the money properly invested. Then extend the mortgage to cover the improvements. Instead of putting the 100 quid into the ISA divert it and use the total of 150 pounds available to overpay the mortgage for the moment..

If the ISA is well invested you should easily be able to get better returns than the mortgage interest rate,especially with charges discounted.Then when you have reduced the mortgage back down a bit you can start funding the ISA again.

moneyandmountains

freaksaver wrote:

Hi Guys
My dilemma now is Do I keep the money in and hope for a good return and get a loan/remorgage for the £10000 (I had a quote of around £78 extra per month and as I already over pay £50 on my morgage I wouldnt really feel a difference) or do I use my ISA money and start putting the £100 (which I currently put in anyway) plus the £78 (which we were prepared to pay extra for the mortgage), back into my ISA to get me up to the £10000 mark again.

What you are talking about is a geared investment.

You could think about it in an equivalent but alternatively phrased way.
1) Assume you have cash in hand that pays for your home improvements. (This is equivalent to the money already invested)

Now you can consider a clean situation of whether you would borrow money from a bank to invest in the stockmarket (returns obviously adjusted by the ISA benefits). This isn't necessarily a bad thing, just the risk profile is different to that of where you are the owner of the funds.

anniecave

EdInvestor wrote:

Don't close the ISA, if you do this, you lose the allowance forever, very bad Just move it and get the money properly invested. Then extend the mortgage to cover the improvements. Instead of putting the 100 quid into the ISA divert it and use the total of 150 pounds available to overpay the mortgage for the moment..

If the ISA is well invested you should easily be able to get better returns than the mortgage interest rate,especially with charges discounted.Then when you have reduced the mortgage back down a bit you can start funding the ISA again.

If this was me, i would say it would depend on the mortgage rate. And if the mortgage was increased to cover the improvements, will that affect the rate? And will there be any revaluation, arrangement, setup fees etc to do this?

Unless I could easily extend the mortgage with little cost and it's a good mortgage interest rate (lower than I'd expect to get with my expected "properly invested" money then I would say I would be better off using this money to pay for the home improvements.

The ISA allowance won't make much difference because there will still be lots of ISA allowance to use in the future for future investing/saving again anyway.

benood

Bit of a conundrum. Over the long term you could reasonably expect an equity investment to perform well enough to more than repay the interest on your mortgage, however fluctuations are to be expected - if you don't like the risk how about moving to cash isas instead you may well find a rate which earns more than you pay on your mortgage.

Finally I reckon if you stick with equities then certainly start putting your £100 a month into a different fund from asap to spread your risk.