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

JimmyTheWig

Thanks Holly.

Now I believe that we are all in broad agreement.
If the OP can achieve around 3.2% guaranteed returns on their money then it would be better to hold off from paying off the mortgage.

Now, the best I can find is 2.8% net of basic rate tax - which suggests paying off the mortgage is better. But not tons better. About £150.

So if there are other factors at play (like the ERC going down in a few months time [OP to confirm] or wanting to pull out of the S&S slowly [comments, anyone?]) then it is worth considering.


Another thought, OP...
If you make a large overpayment now, are you still allowed to overpay by £500 a month in the future?
If that's the case then I suggest you pay off £23,500 (plus £705 ERC) now and pay off the remaining £6,500 over the next 13 (sic) months.
[But this is still subject to my two questions above.]
If you do this you may want to put the remaining ISA balance into a fixed rate account for a year earning 3.51% gross, or you may have better plans for it.

getmore4less

If you make a large overpayment now, are you still allowed to overpay by £500 a month in the future?

Thanks, forgot the keep some back and use overpayments which is cheaper than the 3% fee for a while.

Also begs te question where have all the previus overpayments been going?

If the plan is to use the money in 15 months then the current vehicle imay not appropiate (depends on the investments) and is not relevent since the money should be moved to a low(no) risk invetment that meets the return requirements.

A key is the longer term choice to keep the ISA looking at alternative ways pay off the mortage or not.

JimmyTheWig

getmore4less wrote: »

forgot the keep some back and use overpayments which is cheaper than the 3% fee for a while.

Based on the availability of 3.51% gross interest, do you agree that overpayments are cheaper than paying the fee for about 13 months?

getmore4less

Approx calc (0.03*12/(0.0563-0.0351)

I make that about 17months

JimmyTheWig

The 3.51% is gross. The OP and spouse pay tax.

getmore4less

JimmyTheWig wrote: »

The 3.51% is gross. The OP and spouse pay tax.

Ok 13 months looks about right

Just realised these calculations might be wrong, need to think about it properly but going out tonight, so one for the morning while watching the rugby if I remember.

If my instinct is correct it may be even more marginal paying off the mortgage.

holly_hobby

JimmyTheWig wrote: »

Thanks Holly.

Now I believe that we are all in broad agreement.
If the OP can achieve around 3.2% guaranteed returns on their money then it would be better to hold off from paying off the mortgage.

Hi JTW,

Sorry I agree with the net return reqd but thats it I am afraid ...

As I am looking at this from a risk and motive point of view (and taking the assumption from the OPs posts & investment history), that they have a cautious ATR (esp re the previous upheld LCE complaint - which is where the investment funds originated from) - which dependant upon the asset base of the ISA (and if its managed or self invested), IMHO any asset backed investment mge repayment vehicle, doesn't acutally suit their risk profile at all, what I am happy to see though is that their fund has achieved the desired target amount at some time before the scheduled redemption date of the mge in 2023.

My final personal view is that unless the stated value of the fund of 30k (which may have already changed due to the invesment nature of ss ISA), is ringfenced in a low risk vehicle, achieving a net return over 15 mths equal to the mge outlay less £900 as discussed), I have to again say I stick with my own initial feelings of repaying the 30k in q, primarily for risk based reasons as detailed in my earlier post.

Moving to a low risk vehicle (having exhausted any investment into a cash ISA (subect to their contribution this yr to all ISAs held) ), for such a short term period of 15 mths will not give particular spectacular net returns, (and will poss struggle to achieve the noted net returns reqd to cancel out the related mge costs over the same term), but on the flip side the OP may be quite happy to continue with their ss ISA - and exposure of the fund to risk for the prospect of higher gains than will be acheived in a limited term account - which of course is the core basis and benefit of investing in stocks & shares, .

Having said that, I will leave further calcs & debate on this to you and GM4L - hopefully there will be sufficient info through our healthy discussion and evaluation, to help the OP come to their own decision.

Hopefully they will pop in and give us their thoughts on our discussions, and which road they eventually elect to take?

PS - Enjoy the rugby GM4L !

H x

getmore4less

Stigofthedump wrote: »

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?

Not that simple. look at a single penalty free overpayment

If you overpay £500 thats 3% so £15 but one months interest at 5.63% is £2.35 and £500 kept in regular savings at say 2.81% net is £1.17

So first month you save £1.18 but pay £15

This means you are better keeping back £500 to overpay similarly
month 2. £2.36
month 3. £3.44

£15/£1.18 =12.7 so at least 12 months worth needs keeping back
I think more accurate calculation show that you need to keep back 13 months worth if you can get 3.51% gross 2.81% net.

If the return on savings gets high enough to make it 15 months then better of not paying.

JimmyTheWig

holly_hobby wrote: »

Sorry I agree with the net return reqd but thats it I am afraid

Sorry, that's all that I meant. Previously there was disagreements on this, but now we agree.

I don't disagree with the rest of what you are saying, though, really. Because I don't think the OP can get the required guaranteed return, even at the rate that we've now agreed on.

I do think that they should leave £6,500 outstanding on the mortgage for now and pay that off at £500 a month over the next 13 months.

I do also still think that they should check if the ERC will go down at any point.

And I would be interested in your opinions on taking the whole S&S balance out in one go as opposed to taking it out more slowly.


But OP, if you want a short answer, you could do a lot worse than pay off your mortgage with your ISA. You are unlikely to do a lot better than doing so.

holly_hobby

JimmyTheWig wrote: »

I don't disagree with the rest of what you are saying, though, really. Because I don't think the OP can get the required guaranteed return, even at the rate that we've now agreed on.

Agreed - they will struggle to find anything without a min 2 yr notice period, which will be further compounded for any capital held o/s of a tax free wrapper, if they are subject to HRT.

I do think that they should leave £6,500 outstanding on the mortgage for now and pay that off at £500 a month over the next 13 months.

They will still suffer a ERP for part redemption for anything in excess of the annual permitted amount - so the original motive for withholding payment becomes irrelevant (although it may be reduced if ERP is % of total repaid).

I do also still think that they should check if the ERC will go down at any point.

Agreed - there may be a lower redemption at yr end - BUT again the risk exposure to the value of the ISA remains - and there may not be 30k to withdraw at yr end, depending on markets, management fees (if managed fund) etc ... which will all have an impact on the value at the date of encashment.

If this is an option the OP wants to exercise I would suggest ringfencing the 30k in question.

And I would be interested in your opinions on taking the whole S&S balance out in one go as opposed to taking it out more slowly.

As above - in my opinion, based on the basis of investment, and without conducting a full financial review of the OPs, I believe it should be ringfenced, as already being at target. Leave a little in maybe to retain the ISA, if the OPs wish to maintain a SS investment vehicle.

But OP, if you want a short answer, you could do a lot worse than pay off your mortgage with your ISA. You are unlikely to do a lot better than doing so.

Now there we do agree ..... but its up to the OP as we are not giving them advice, just opinon based on the limited facts...


Holly