save or pay more off mortgage.

kph100

Position -

£38k in a halifax cash ISA at 3.2% net
£14k in LLoyds Vantage at 2.37% net
£23k invested in shares
£8k cash uninvested in stocks shares isa
£20k in NS&I index linked

Owe £123,000 on mortgage at 6.39% 25 year fixed, am overpaying at moment that if continue shall pay off in 13 years.

Should I change allocation to different investments ?
Should I be using some of the money to pay off the mortgage rather than in cash ISA. ?
I do like to have a good cash blanket.
I have a public sector pension which costs 11% of salary, who knows what will happen to that !
I am 44 years of age, married with no dependants.

Comments please. nice ones !

opinions4u

Overpay the mortgage to the maximum level you can.

ses6jwg

I agree, at that interest rate it would be silly not to pay it off to the maximum.

Also you've got £22k there in S&S ISA and Lloyds vantage that could be working harder.

jamesd

What are the early repayment penalties for the mortgage like? With five year fixes now below 4% there's a lot of money potentially to be saved if the penalty isn't too high.

Since you like a high cash cushion you'd be a good candidate for an offset mortgage or part offset part fixed. The cash in the offset part would be available for your use but meanwhile you wouldn't be paying interest.

You have lots of cash, have you considered stoozing? You could borrow on credit cards and use that money to pay off some of the mortgage (or into an offset account) and have your cash cushion available to clear the cards if it turned out that you didn't just get a replacement balance transfer or 0% for purchases deal.

6.39% is a sufficiently high mortgage interest rate that only investments - funds or shares - or paying off more expensive borrowing would beat making overpayments on the mortgage.

What are the penalties and limits for any lump sum overpayments? If you can make overpayments without penalty you could do that short term then get an offset mortgage in a remortgage and pay a penalty on only a relatively small remaining balance. The offset deal could be for a value to get you back your cash cushion, with you able to have the cash in the offset account so you don't pay interest on that part of the mortgage.

Are the shares in a S&S ISA?

Long term you'll benefit significantly from the money in the ISA tax wrapper so I wouldn't want to remove that. You can get more than the mortgage rate even from bonds in a S&S ISA so there's no advantage to taking money out of the ISAs - you could transfer the cash to S&S to get the higher payout. But even though removing the money wouldn't make sense, you could use it as a fund to back credit card balance transfer deals and use those to pay off some of the mortgage. A 3% fee, 0% card deal for say 15 months would save you around £700 on a £10,000 card limit. Pay it off at the end out of income saved or via another balance transfer, with the ISA money just as a fallback.

As well as the better returns from investment, it looks as though you'll badly need all possible tax breaks once the mortgage is cleared so it's good to try to use the full ISA limit every year to accumulate the largest possible tax free amount.

Best course for the non-ISA money depends on overpayment limits and penalties on the current mortgage.

First Direct has a regular saver account paying 8%, that's one better deal than the Vantage account. Can put in up to £300 a month for twelve months.

Are you or your spouse paying any higher rate tax? If yes, pension contributions can be very profitable, getting 40% tax relief then a 25% lump sum at age 55 that can be used to partially clear the mortgage, while leaving the remainder in the pension pot to produce income. It's possibly the most efficient method there is for clearing a mortgage.