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

getmore4less

holly_hobby wrote: »

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 - less the £900 erp of course (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 loss) ?

H.


H

NOW NOW that is not what I have advised.

What I pointed out what your analysis of return on savings was incorect.

The key is the return needed and analysing that correctly once you have that you can look at the options.

The choice of vehicle(or just paying it off) and risk analysis is a seperate issue an I have not suggested anything.

Given the OP was using a S&S ISA I will leave it upto them but is does seem that their risk profile has changed since it achieved the goal in being able to pay off the debt.


Be interesting what the return was on this S&S ISA investment since chosen.

I think the other key factor is £30k in a S&S ISA has an intrinsic value to some(not all) tax payers.

getmore4less

holly_hobby wrote: »

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

Agree an interesting choice of alternative

details of return even more interesting

holly_hobby

Yes I agree .. I am v surprised at the choice of speculative choice of mge repayment vehicle, post usual basis for endow complaint uphold - but they seem to be v happy with it (lets hope that the markets remain steady for them until encashment...fingers crossed twice )

H x

Stigofthedump_2

I think we're just a bit naive! :-)

JimmyTheWig

Just out of interest, Stig, was the endowment proven to be missold (i.e. did you get compensation) or did you just decide to cash it in?
I would like to say that whatever happened and however naive your choices were you did the most important thing right in that you paid in enough money each month to get to this position now. Well done for that. Many people didn't make that choice.


Holly Hobby and getmore4less, do you both agree that if the OP can guarantee to get a 3.23% net return on their investment (see my post #8) that it would be better to do this than repay the mortgage early?

Holly Hobby, particularly, what is your opinion on the OP withdrawing the whole £30k from S&S in one go as opposed to taking it out more slowly?

getmore4less

Holly Hobby and getmore4less, do you both agree that if the OP can guarantee to get a 3.23% net return on their investment (see my post #8) that it would be better to do this than repay the mortgage early?

Start point £30900 savings , £30000 mortgage payment £140.75pm

goal to generate £140.75pm and end up with £30k savings after 15months

Rate needed(whatsthecost ) 3.17%

So around the same figure, the different ways you can do this will come up with slightly different answers.


Holly Hobby, particularly, what is your opinion on the OP withdrawing the whole £30k from S&S in one go as opposed to taking it out more slowly?

I think the OP neds to consider their long term situatin and what place the S&S ISA plays in that. wil depend on surplus income and savings stratagy if it will exceed the allowance then keeping some/all of the currently used allowance has some merit.

If they decide that this money is going to pay off the mortgage then the low risk option is to do it now, partial drawdown where there are ERC makes the future returns required higher.

JimmyTheWig

I'm happy to agree on 3.17% (looks like it was calculated more accurately than mine was and comes to roughly the same which suggests they are both about right).

Do you agree Holly Hobby?

holly_hobby

Hi Jimmy,

As per my earlier posts, I do agree that if the OP is gte'd over the next 15 mths, to achieve a minimum net return of £2,111.25 on their £30,900 ss ISA investment - it gives grounds for delay in redemption in order to save the erp of £900. Does the basis of investment offer such growth, and is it realistically achieveable over the req term, are in this respect the most pertinent questions and an unknown area at this point.

That is one side of the coin, but this also needs to be balanced against the OPs ATR and capacity to absorb any losses - especially as this is in effect a mortgage repayment vehicle, which is/was funded by the compensation from an upheld LCE compliant. (which I would assume the complaint was in relation to typical compliant, of the LAs ATR being unsuitable to the contract, and that they were unaware the policy held no gtes in respect to the target sum reqd at maturity).

Notwithstanding the issues re the potential for required return, one would assume that the OPs ATR especially for Mge repayment (which is naturally often much more conservative than that for general invesment), was/is at best Cautious (although the SS ISA does suggest other, the OP has stated that they were nieve in their selection of a ss ISA - so one presumes this was an execution only).





Based on the background to and requirements of the investment vehicle, I personally remain v uncomfortable in encourging them to maintain a SS Isa under such circs , especially when it has already achieved its objective of 30k target figure re repayment of I/O element (albeit with a £900 fee) - but there are salient arguments for both sides - it does all come down to the OP:-

• their full financial circs
• ATR (mge as opposed to general) in respect to the SS ISA as a mge repayment vehicle, and the risk exposure re the value of an asset backed fund
• their capacity to absorb any capital losses that may be suffered over the coming 15 mths, without it negatively affecting the repayment of the mge element being discussed, at the end of the scheduled 15 mths (of which they are currently in a position to execute such a redemption)
• and if they are also happy over the same period to incur a total borrowing cost of £2,111.25, in the knowledge that this outlay may not be totally recouped or recouped at all, by potential growth within the ISA fund (assuming no capital loss is also incurred over the same period - which would make for a larger discrepency in funding).
• Of course the future performance of the SS ISA over the term in question, may not only achieve the desired returns to offset the mortgage interest costs incurred, but may actually exceed our requirements to boot - but the OP must balance this consideration - against how they will accomodate any negative issues the ISA may incur as discussed above.

Big decisons for them ... only they can make them ... with my own initial view remaining unchanged for several reasons, and I do believe that the origingal ISA objective, which has thankfully been achieved, be used as intended in redeeming the 30k I/O element held at 5.63%.

But that is only my opinion .... wouldn't a crystal ball be great !!

Holly

JimmyTheWig

holly_hobby wrote: »

As per my earlier posts, I do agree that if the OP is gte'd over the next 15 mths, to achieve a minimum net return of £2,111.25 on their £30,900 ss ISA investment - it gives grounds for delay in redemption in order to save the erp of £900.

Hi Holly.

I disagree with the £2,111.25 figure.

For now, lets ignore whether the required returns can be guaranteed or not (I don't think that they are, but only marginally so). Lets only look at what the guaranteed returns would need to be.

Lets say the OP currently has £30,900 in the ISA and £30,000 outstanding balance on the mortgage at 5.63% interest.

Option 1 - pay off the mortgage and ERC.
This will leave zero in the ISA and zero outstanding mortgage balance.
The same will be true in 15 months time.

Option 2 - delay paying off the mortgage to avoid ERC.
In 15 months time the OP will have paid £2,111.25 in mortgage interest.
Their mortgage balance will be £30,000.
Their ISA balance will be £30,900 + returns.
So when they pay off their mortgage with the £30k they will have £900 + returns in their ISA.
So to make this worthwhile, the £900 + returns needs to outweigh the £2,111.25 paid in interest.

So the returns needed are £1,211.25.
Do you agree?

holly_hobby

Hi JimmyTW,

Yes agreed, I omitted to re-adjust the £900 at 15mth redemption.

Which is equal to - £2,111.25 -£900 (ERP put to one side for inv rtn in placing of paying as fee, but is effectively returned to the OP in 15 mths).

The equiv net return reqd to make the figs work, are a little diff in my calcs .. but not one for splitting hairs when it doesn't change much ... !

Remainder of my consideratons regarding the other issues to hand remain unchanged.

H