Re-mortgage. use investments to reduce mortagae at same time or not?

Harri2

Hello everyone, I'm looking for some advice

I currently have an offset mortgage which does not suit me. 2 reasons. I am not good at keeping my current account in the black and the other is I just found out it is interest only so although I am overpaying each month the debt itself is not going down very fast. Interest £275 payment £400 You see what I mean.

So having got hold of Martins excellent re-mortgaging advice booklet and understanding quite a lot of it I have got in touch with L+G to look at some alternatives. My current mortgage is about £56,000 and in addition I have a loan pot of £9,000 and am overdrawn by about £3,000 making a grand total of £68,000 including repayment charges and interest.

What's my investment dilemma?
Six years ago when my father died he left me £30,000. I invested £20,000 with a company called AIG, an American company which seemed to give good results. The other £10,000 was invested with Eagle Star. Both then plummeted in value and only now have they both reached the amount I first put in and are starting to accumulate some interest.

One thing Martin says is that as the mortgage is debt and savings don't pay as much interest as debt requires it may be better to pay off the mortgage than keep the nest egg and that's what I see this money as. I have not touched it in the 6 years and had no intention of using it until I retired. I was trying to apply the rule about always having at least 6 months salary in case of disasters. I am 45 now and hope to retire when I am 58-60. At that point I want to be off round the world having at least one gap year! I am a University lecturer and earn £35,000 so do OK and when my £8,000 credit card bill is paid, thanks to the advice on this site I will be relatively debt free.
Martin says if your mortgage is quite small say £30,000 or less it may not be worth the charges to move the mortgage.

So..........
Should I liquidate my investments, all or some of them, and plough them into my mortgage. I know I would not then be able to access the cash but in the next few years I might be able to save some for my rainy day or my retirement!

dwsjarcmcd

In all honesty only you can answer your own questions, at least not without a lot more questioning and understanding of your situation. For example you say that the £30k investment is your nest egg for retirement, but you don't mention what your retirement income is likely to be.

My advice is to go and discuss your hopes, dreams and aspirations with an IFA, and s/he can investigate all of your circumstances, not just relating to your mortgage, which IMHO, really only is a small(ish) part of what you are looking to achieve. HTH

David

jamesd

Making some assumptions about initial amount and how long you've had the mortgage, a repayment mortgage would be costing you about 375 a month so with 400 a month you're overpaying that and making more progress than required.

Using the investments to eliminate the 12,000 in non-mortgage debt is probably a good idea. This debt probably has interest rates above what you're likely to earn from investments, assuming it's at above 9%.

You bought just before a massive stock market crash, so your timing was unlucky.

I don't know the specifics of the investments you have but it's likely that you would be best served by transferring the remainder of the investments into a stocks and shares ISA at 7000 a year, first now, second in mid April. By mid-April this and debt repayment will have reduced your current holdings to 7000 and that can be put into an ISA the following year.

If either of the investments you have allows you a wide range of funds to select from, please say so.

Your ISA investments should be in at least 7 different funds, possibly 14 different ones when you have 14000 invested, spread among many different regions and market sectors. This spreads the risk and decreases the swings in value that you can expect to see. You should learn about asset allocation.

Investing like this is expected to do better than putting the money against your mortgage, though as you've seen there can be a bumpy ride sometimes.

Assuming you can afford your current loan and overdraft payments, it would be useful to start up a regular savings plan with the amount of those payments, then switch that money to an ISA once you have free ISA allowance (7000 a year, likely to use it all for the current and next two years). This is quite a good use for the offset feature if you keep that mortgage for a few years. Then you could convert this to regular ISA investing once the allowance is free again.

If you are not using your offset feature, you can probably obtain a cheaper mortgage elsewhere.

You can remortgage down to about 15000 but as you approach that the fees start to become a significant cost and somewhere between there and 30000 it's often better to switch to a lifetime tracker mortgage then stop switching. Lifetime trackers won't revert to the expensive SVR mortgage rate.

AIG and Eagle Star have a range of products so it's hard to say whether they are good without knowing exactly what you have.