Just about to get my first Mortgage - question

VJ_

So how soon until I can be realistically mortgage free? I'm just about to borrow 63,000 at 1.89 above base for the lifetime of the mortgage; so currently 2.39% over 25 years. HSBC lifetime tracker special: https://mortgages.hsbc.co.uk/product/A001001730001001731001001732-lifetime-tracker-special?source=results

Totally fee free (yay!) and I think I can make as many over payments as i want; I'll be clarifying this when I sign the paperwork next week. But my question is that is it usually better to pay off the mortgage or to use my ISA allowance? Until now I've been used to saving, saving and more saving & never been in any sort of debt,* so this is an entirely alien situation for me. All comments, advice etc. appreciated.:)


*student loan excepted; even that was only used to put into my ISA those years...

gelato_cat

Congratulations on buying your house/flat Personally, I wouldn't put anything in savings while I had a mortgage unless it was offset against the mortgage (and with most (if not all) ISAs you can't do this). The reason being that the interest you would be paying on the mortgage is probably more than you'd get in savings interest on the ISA.

(That is broadly speaking of course. It's different if you have an interest-only arrangement with the need for some sort of investment vehicle to pay off the capital at the end, which doesn't seem to be the situation you will be in.)

Suze

VJ_ wrote: »

But my question is that is it usually better to pay off the mortgage or to use my ISA allowance?

VJ_

Suzey wrote: »

Congratulations on buying your house/flat Personally, I wouldn't put anything in savings while I had a mortgage unless it was offset against the mortgage (and with most (if not all) ISAs you can't do this). The reason being that the interest you would be paying on the mortgage is probably more than you'd get in savings interest on the ISA.

(That is broadly speaking of course. It's different if you have an interest-only arrangement with the need for some sort of investment vehicle to pay off the capital at the end, which doesn't seem to be the situation you will be in.)

Suze

First, thanks for the congratulations, the sale is STC so I'm still a bundle of nerves...

You're right, it's a repayment mortgage, but surely you have some sort of some sort of 'rainy day fund'? I know that I'm going to leave at least 3-6 months wages in a cash ISA.
I was wondering about any regular savings on top of that. Is it really not worth saving anything? If so, I'm going to have to get into a very different mind set...

dimbo61

Yes its best to build up 3/6 months of savings in cash ISA,s and you should get 3% plus tax free so build up your savings and then overpay when you can!
You must have put down a good deposit in order to get that deal and I think with HSBC you can overpay by 20% of your normal monthly payment !!!!
This is not as good as other lenders who allow 10% of the balance each year and some deals which allow unlimited OP,s ( offset mortgages) but you have a good rate so build up savings and OP as much as you can GOOD LUCK with the property purchase

Lokolo

Your mortgage is costing you 2.39% whereas you can get ISAs which accept transfers at 3.1%......

Common sense should prevail here...

cashbackproblems

If you overpay your mortgage too much that money is tied up until you sell and then it would be used as a deposit for a new place, what if you want a holiday, lose your job, want to buy a car?

As pointed out the isa rate is more than you mortgage and while your young i personally wouldnt overpay by too much.

adwat

Hi, overpay as much as you can afford and watch the balance drop! Most mortgages these days allow you access to your overpayments in the form of payment holidays or equity withdrawals - check with your lender for their terms and conditions first. As for an emergency fund, 3 to 6 months worth of payments is what many people feel happy having stashed away, but if you've access to your overpayments then you need to decide if you want that in addition - for example, the Nationwide allow access to all overpayments as far as I'm aware. As for savings, unless you can get significantly more than 3% on your savings then it's not worth it - and don't forget you need to have the self discipline not to tap into those savings over a long period of time! That's the sort of discipline I don't have personally!

adwat

In fact, the example dimbo61 (sorry dimbo, not criticising you at all) gives of an ISA at 3.1% highlights the problem of savings vs. overpayments. £1000 at 3.1% would give you a yield of £7 per year over and above making overpayments. So say you're able to make £10k overpayments per year you'd be better off by £70 per year having a cash ISA - very little gain considering you could fritter away those savings on a whim if you so chose to! If interest rates rose by 0.5% then that would add an extra £217 per year onto your mortgage - more than offsetting your £70 gain on your ISA.
If you had paid that £10k off your mortgage balance that would save you £525 per year at your current interest rate of 2.4% and the effect of a 0.5% rise in interest rates would be £370 LESS in interest compared to your current repayments. As you can see, overpayments are the way to go big style.

VJ_

dimbo61 wrote: »

Yes its best to build up 3/6 months of savings in cash ISA,s and you should get 3% plus tax free so build up your savings and then overpay when you can!
You must have put down a good deposit in order to get that deal and I think with HSBC you can overpay by 20% of your normal monthly payment !!!!
This is not as good as other lenders who allow 10% of the balance each year and some deals which allow unlimited OP,s ( offset mortgages) but you have a good rate so build up savings and OP as much as you can GOOD LUCK with the property purchase

Yeah, I put a 40% deposit down, I've been saving in one way or another since I was 16; made some clever & some lucky choices (e.g. starting my Stocks and shares ISA with a lump sum when the markets hit a 30yr low - I more than doubled that money), and have been very disciplined by setting up standing orders to take most of my monthly salary away into various savings accounts before I can even touch it. I've been living at home until now, so my outgoings have thankfully also been minimal.

cashbackproblems wrote: »

If you overpay your mortgage too much that money is tied up until you sell and then it would be used as a deposit for a new place, what if you want a holiday, lose your job, want to buy a car?

As pointed out the isa rate is more than you mortgage and while your young i personally wouldnt overpay by too much.

Yeah, these are the kind of things I was unsure about.

Lokolo wrote: »

Your mortgage is costing you 2.39% whereas you can get ISAs which accept transfers at 3.1%......

Common sense should prevail here...

You make a very good point. Either way, I'll have to look into transferring my cash ISA, it gave me 9% in the first year, but nowhere near that now.

adwat wrote: »

Hi, overpay as much as you can afford and watch the balance drop! Most mortgages these days allow you access to your overpayments in the form of payment holidays or equity withdrawals - check with your lender for their terms and conditions first.

I'll certainly have to check with HSBC to see if they do this.

and don't forget you need to have the self discipline not to tap into those savings over a long period of time! That's the sort of discipline I don't have personally!

That's easy for me, somthing I'm well used too.:)

dimbo61

I stand by what I have said
1 build up some savings in cash ISA,s upto £16K as this helps if you need to buy a new car/ replace the boiler ETC ( emergency funds)
2 overpay what you can afford

Peonie

We have just opted for a HSBC repayment mortgage but got it the month before your deal and had to pay the product fee etc. For ours we can overpay as much as we like but check the small print of your documents so you don't pay any extra fees.

As to whether you have any savings or not, that comes down to financially what type of person you are. Personally, I need to know I have savings in the bank for a rainy day or else I might have a few sleepless nights. You need to do what's right for you.