Should I repay £30k part of interest only fixed mortgage

holly_hobby

Not liable to income tax would be achieved by a total personal annual income (inc interest payable on savings/bank accounts etc), below the current PA allowance of £7,475 2011/12 (if you are under 65).

You may apply to have the interest paid gross by your bank or building society, by completing form R85 ( http://www.hmrc.gov.uk/forms/r85.pdf ). You submit this to your bank whom will pay your interest gross, and inform HMRC of the same. You can withdraw this at any time, as may HMRC if they believe you are liable to income tax.

Any tax deducted at source in an interest baring savings account or investment vehicle, such as a bond etc (which is taxed at source at (currently) 20%, and held by qualifying non-tax payers, may be reclaimed from HMRC (they do have a specific form to complete, and there are strict time limits to reclaiming)

Hope this helps

Holly

getmore4less

holly_hobby wrote: »

Would wager OP means SVR, also the FA @ 2.5% is not on 30k - OP hasn't given a fig yet. (unless I've missed it )

H

£30k at 2.5%(net of tax) is the interest the saving could get if not used to overpay.

You have to take account of this in the calculations. OP may get different to this and within a S&S ISA could be considerably more plenty of shares yielding 5% risk is capital.

The other think is he ISA is use or lose so that needs to be considered long term.

Cashing in ISA's is not something you do without carefull thought

The savings paying off the £30k I/O is no where near as high as you indicated in your post.

getmore4less

holly_hobby wrote: »

Is the 34k (penalty free) FA - based on interest only or C&I ?

Even so, I do stick with my original view of redeeming the 30k I/O element @5.63% (which is over double of that being charged on the penalty free further advance).

My choice is the above, rather than partially repaying the 34k FA simply because it has no pens, or delaying total repayment of the 30k @5.63%, with a possible loss of value of your ISA, or withdrawing your ISA & trying to source a savings home with a net growth of circa 5.63%, all with the objective of saving an ERP of £900.

Prudent financial advice is always to reduce debts before investment, as you will always be charged more interest on borrowing that you will achieve on saving.

In recent times of historically low interest, this basic fact may now not always be accurate - in this case though I think you will struggle to find an ISA or net savings vehicle, with a similar risk profile to an ISA, which will provide you with a net return over the coming 15 mths, equal to or in excess of the 5.63% your debt is incurring.

But the choice must be yours, as my comments are based on limited personal info and therefore informal, and do not (although I am suitably qualified) constitute advice in any professional capacity.

But I do hope this helps

H

You have to take into account the ERC, the net return to ballance is not the mortgae rate

It likely that the paying the ERC and cutting debt is the correct option but it needs the correct financial analysis without basic fundimental errors.

holly_hobby

OP has SS ISA = 30k equiv to repay IO element of mge - which is his current consideration.

ISA currently worth 30k - as an asset back investment - the value is subject to change in the market - leaving it could result in a reduction (or of course gain) in the fund value. (risk is if the OP has the capacity to absorb any reduction the fund experiences within the next 15 mths - until he is out of ERP)

Op intends to continue with ISA investment post part redemption

The element of 30k the OP is talking about repaying is @ 5.63% interest not 2.5%. He has a penalty free FA of 34k on 2.5% - which is where the confusion comes from (as a note the OP has not advised repayment method re this element)

If you are actually referring to the 34k in question needing a net of tax return of just 2.5%, I am v happy for you to quantify any "fundamental errors" you have noted, re the OPs orig Q of repaying the 30k @5.63%, against additionally raised issue of considering repayment of 34k penalty free FA @2.5%, against using the 30k ISA capital as a further investment instead of as a lump sum mge reduction, to avoid a £900 pen fee. (which I think is your discussion ?)

Ah just realised what you mean re the ERP i.e any calc should include the loss on investment rtn of the £900 reqd for the fee ?

IMHO I would not consider this a basis for myself retaining a 30k IO advance at 5.63% - but happily willing to be converted with the figs you have put together to illustrate, which will all go to benefit myself and the OP and his question.

H

Stigofthedump_2

JimmyTheWig wrote: »

OP, What are the terms of your ERC?
To summarise...
1. Find out if your ERC will go down if you wait a few months.
2. Decide whether you think it is worth leaving your money in the S&S ISA (i.e. what do you think the stock market will do) and consider how you want to withdraw the money.
3. Consider the 3.51% interest one year savings account if you (or your spouse) don't pay income tax.
4. If none of the above work for you then pay the balance off the mortgage.

Jimmy, Many thanks - I'm going to look into your points further - may influcence my decision.
Hubby and I are both tax payers

Stigofthedump_2

holly_hobby wrote: »

OP has SS ISA = 30k equiv to repay IO element of mge - which is his current consideration.

ISA currently worth 30k - as an asset back investment - the value is subject to change in the market - leaving it could result in a reduction (or of course gain) in the fund value. (risk is if the OP has the capacity to absorb any reduction the fund experiences within the next 15 mths - until he is our of ERP)

Op intends to continue with ISA investment post part redemption

The element of 30k the OP is talking about repaying is @ 5.63% interest not 2.5%. He has a penalty free FA of 34k on 2.5% - which is where the confusion comes from (as a note the OP has not advised repayment method re this element)

If you are actually referring to the 34k in question needing a net of tax return of just 2.5%, I am v happy for you to quantify any "fundamental errors" you have noted, re the OPs orig Q of repaying the 30k @5.63%, against additionally raised issue of considering repayment of 34k penalty free FA @2.5%, against using the 30k ISA capital as a further investment instead of as a lump sum mge reduction, to avoid a £900 pen fee. (which I think is your discussion ?)

Ah just realised what you mean re the ERP i.e any calc should include the loss on investment rtn of the £900 reqd for the fee ?

IMHO hardly the basis to keep paying 5.63% mge interest on 30k & instead paying off the 34k @ just 2.5% - but happily willing to be converted with the figs you have put together to illustrate, which will all go to benefit myself and the OP and his question.

H

Can I add couple further points...
I'm a lady - yeah I know with a forum name like stig you would assume - made me chuckle tho. (long story!
I'm loving the discussions but struggling to keep up with the terminology - apologies for my ignorance but what is IMHO?
I fully appreciate the discussion does not fulfil 'official' legal advice and is expressley your opinions but I'm keen to try and understand all the aspects we need to consider when making this decision.
To offer a little more to the picture the ISA fund of £30k was set up to replace an endowment which was mis-sold, and sucessfully claimed against - this ISA was set up soley to pay the I/O part of our mortgage - the remainder of our mortgage was converted to repayment - dont know if any of this is useful info.

getmore4less

holly_hobby wrote: »

The element of 30k the OP is talking about repaying is @ 5.63% interest not 2.5%. He has a penalty free FA of 34k on 2.5% (OP has not advised repayment method re this element)

V happy for any "fundamental errors" re the OPs orig Q of repaying the 30k @5.63%, against additionally raised issue of considering repayment of 34k @2.5%, against investing the 30k ISA capital instead to achieve the same rate & avoid £900 pen fee (which I think is your discussion ?)

Thanks

H

Correct I am talking about the £30k mortgage at 5.63% and the £30K savings(currently in S&S isa)

OP has £30k which can earn interest by keeping it in saving your assertion is that this needs to match the mortgage rate to make not paying the fee worth while.

This is the fundamental error

Your assertion that the savings need to match the mortgage rate is incorrect because there is a 3% erc which you fail to take into account.

A simple explanation that does not need any calculations.

The choices are use the savings to pay off the debt

The makes the starting point, op needs £30900 to net out at zero today paying the 3% fee

The alternative is pay the mortgage and keep the savings(which actualy need to be £30900).

£30900 at the mortgage rate creates more interest than needed to pay the interest on the mortgage AND at the end(any period you like) you still have the £900 excess, so the saving rate can be less than the mortgage rate and use up the £900 over the desired period.

holly_hobby

Right I see ...

I understand your advice to OP as, not to redeem the 30k discussed, but instead put the £900 ERP into the current ISA with the existing 30k, hope the markets remain steady and the SS ISA does not lose any value over the proceeding 15 mths, whilst OP maintains the I/O element of 30k @ 5.63% over the same term, and then repay as discussed when the discussed funds are out of the £900 ERP period.

With obviously the total gain to the ISA over the 15 mths, required to be equal to the same amount of interest paid to the lender on the os amount (which would mean that having taking account of all of the above, the OP at the time of penalty free redemption will not have suffered any financial penalty as a result of delaying repayment) ?

H.


H

holly_hobby

Oops sorry stig ... x

IMHO - just means In My Humble Opinion i.e its just what I think.

Gosh having gone from a mis-sold endowment (I assume as you were not aware of or prepared to accept the risk of mortgage shortfall at maturity due to your ATR (attitude to risk), to a stocks & shares ISA is a heck of a jump in mortgage risk profile ... you little dare devil !!

What myself and GM4L are debating is whether it best for you to leave your capital in your ISA, maintain it until your 15mths penalty period is up, and them repay - or repay your 30k lump sum now and suffer the £900 penalty fee.

Its all in good fun, and no one takes offence if someone does not agree with them (or shouldn't anyway).

In view of your mis-sold endow - do you think you could weather any loss in value of your SS ISA or are you happy to paddle along for the next 15mths and see what happens (i.e to avoid the £900 fee) ? Now having some more info re the background to the investment, I do think this is the most pertinent consideration.

Holly

Stigofthedump_2

Re endowment we faced a potential £20k + shortfall about 15 yrs ago so I bottled it and cashed it in and reinvested into the ISA not sure if this was the best thing to do?
We are able to weather drop in the ISA value the mortgage redemption date is 2023 so we are well ahead of target here to pay off the interest portion..so if market goes belly up next week we should be ok still.
As my original post asked what I really wanted to know are the numbers involved with "should we pay off now or wait another 15 months?"
If we save more than £900 in interest over those 15 months surely this is the better option?