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

holly_hobby

JimmyTheWig wrote: »

That's what I guessed, but had never heard the term.
Is this possible within a S&S ISA wrapper?

Would the amount the OP ends up with depend greatly on the level of the stock market on the day it gets ringfenced and, if so, would it be better to ring fence it gradually? [Or by leaving it unringfenced for longer does that pose a greater risk than ringfencing on a bad day?] .

Ringfence is typical FS term - but of course is used in other situations too - in essence it simply mean isoltate, secure, put to one side .... you get the idea.

Any asset backed (stocks & shares) medium is volatile and exposed to movements in the market - which is why a quoted fund value is only valid till at best close of business, and one given one day may have changed the next (sometimes significantly). (and the basis of my orig argument in the matter - esp when looking at the OPs ATR and the source of the orignal investment capital).

Hence it is an investment medium generally more suited to the medium/speculative investor (although there are some "cautious" managed SS ISAs about, although how cautious an asset backed medium can be is debateable (the only way to try and avoid meaty swings in value, would be to invest in blue chip companies - but then you get less for your money, and accordingly a lower growth, whilst still exposed to the fundamental risk the stocks/shares bring).

To further answer the Q - you cannot under a SS ISA, protect your underlying investment from market movements - and therefore the only way of protecting the curent value (if indeed it remains at 30k, a point I prev made) is to withdraw the capital when the sum required is met, and in this case either redeem the mge with it (as was the orig intention of the OP). Or source a deposit medium over 15 mths that will provide a net return sufficient enough to at least offset the mge interest charged over the remaining 15mths until out of ERP (also taking into account the 900 erp). However whether they would be able to souce a sufficient net rate of return on an no/short notice/term account over the term of just a 15 mths will I feel be difficult in todays market. (notwithstanding the fact that we don't yet know if they are HRT or just BRTs (basic rate taxpayers).

GM4L utilising the feeder account idea mentioned, suggested change of repayment method to C&I and reducing the term to 15 mths which would take the mge to pen free anniversary, and save mge over the same term). This sits more comfortably with the OPs percieved ATR, and is an attractive alternative to full redemtpion at this point (with the OP absorbing the £900 ERP). Its viability all hinges on whether the lender will permit the reduction in term. (as we do know the scheduled mge redemption date is 2023.)

Of course if the OPs SS ISA has suffered a change in fortunes since their orig post , then this may have all become a little academic at the present time ....!!

Hope this explains things ...

H

JimmyTheWig

Thanks holly, that's all very useful stuff.

So by ringfencing, here, you basically mean taking the money out of the S&S ISA and putting it in the bank.
Is there a widely accepted approach to doing this with minimal risk? I.e. would it be safest to take it all out at once (thus minimising the length of time any money was exposed to risk) or would it be safest to take it out slowly (thus smoothing the peaks and troughs of the stock market on a day-to-day basis)? Or is this something that experts disagree on?

I agree that the S&S ISA should be ringfenced if the OP doesn't want the risk. [I'm not as convinced as you that they have a very conservative attitude to risk as I'm not convinced that the original endowment was proven to be mis-sold. I think they just cashed it in and set up the ISA instead (paying in significantly more money each month). In any event, I think you could pretty much say it was risk-free that it would pay off the mortgage by the time it was intended to do.]

Then they should...
1. Switch to a repayment mortgage if allowed with no fee, with the shortest possible term.
2. Check if the ERC goes down when they reach one year until the end of the tie-in period. If it does then wait and redeem then.
3. If it doesn't go down then redeem enough so that the mortgage will be cleared by around 13 months of repayments plus £500 a month overpayments.

holly_hobby

JimmyTheWig wrote: »

Thanks holly, that's all very useful stuff.

So by ringfencing, here, you basically mean taking the money out of the S&S ISA and putting it in the bank.

No I didn't say "put it in the bank" - a low risk deposit based medium can be another medium other than a simple bank/bsoc savings accounts (although they are the mediums that generally offer instant or limited notice capital access).

JimmyTheWig wrote: »

Is there a widely accepted approach to doing this with minimal risk? I.e. would it be safest to take it all out at once (thus minimising the length of time any money was exposed to risk) or would it be safest to take it out slowly (thus smoothing the peaks and troughs of the stock market on a day-to-day basis)? Or is this something that experts disagree on?

In this case, the SS ISA was established by the OP as a mortgage repayment vehicle, with the specific objective of achieving 30k to redeem the IO element of the mge.

Accordingly my advice, due to the underlying strategy of the medium, means that when it achieved this sum it should be encashed and the capital used for its objective or placed within a more cautious invesment medium until redemption is reqd.

You are unable to predict from one day to another what the value of your stocks will be - withdrawing at intervals could be extremely beneficial or not, depending on daily value of the underlying value of the shares.

JimmyTheWig wrote: »

I agree that the S&S ISA should be ringfenced if the OP doesn't want the risk. [I'm not as convinced as you that they have a very conservative attitude to risk as I'm not convinced that the original endowment was proven to be mis-sold. I think they just cashed it in and set up the ISA instead (paying in significantly more money each month). In any event, I think you could pretty much say it was risk-free that it would pay off the mortgage by the time it was intended to do.]

Really ?

Direct quote from OPs post -
"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".

Generally LCE upholds are in relation to the exposure to risk of the target amount not being met at maturity, and the LAs being unaware and unwilling to accept this aspect of the policy, if it had been suitably explained at POS.

Of course, the LCE may have been a unit linked contract - and the uphold based on both the above and unsuitable ATR of the product to the client, in respect of a mortgage repayment vehicle.

So the above suggests to me that the OPs ATR (at least in respect of mge repayment) is Cautious at best


Her comment re "bottling it and cashing it in" - is in respect to the fact that not all providers on the uphold of a complaint, automatically surrender the endowment as part of the compensation payment made. But leave it up to the LA if they wish to maintain the contract, now being aware of the risk staus i.e not gted to meet target figure. It appears that the OP was anxious re this aspect, and that is why they surrendered - again supporting a low/cautious ATR.

JimmyTheWig wrote: »

3. If it doesn't go down then redeem enough so that the mortgage will be cleared by around 13 months of repayments plus £500 a month overpayments.

Mge still exposed to ERP until month 15 - but in essence (apart from that) what you have said is actually what GM4L has already proposed. And as I said earlier - if the lender will allow a reduce term to 15 mths on C&I then this is an attractive solution to avoid the £900 ERP.

Holly

JimmyTheWig

Sorry, I missed the "successfully claimed against" bit from the OP. Then yes, they need to ring fence it as soon as possible.

I didn't claim my point 3 to be all my own work. Yes, it's what GM4L suggested.
ERP doesn't come into it if they are only making £500 a month overpayments. Somewhat regardless of the term, if (with permitted overpayments) they bring their balance down to £500 in a year then the next month they can pay off the balance with a permitted overpayment.
They will probably, in this instance, still pay some ERC at this point in time because I doubt that the bank will allow a term short enough for it to be cleared by that point with repayments and permitted overpayments alone. So I think they will need to make an overpayment now and pay the ERC on it.

holly_hobby

Ok - OP has options & discussion to consider, lets for now, await their comments on the same ...

Holly

Stigofthedump_2

JimmyTheWig wrote: »

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??

Sorry been away couple days - will try and answer all the questions that have been posted:
Yes I claimed for the misselling and this was very early days for people making such claims. I got compensation which should ahve put me back in the same situation had I not taken the endowment - it was Windsor Life - following this I decided to cash in the endowment as didn't want the uncertainty of not knowing the outcome and invested in the S&S PEP/ISA which I thought at time to be the best alternative - at the same time we converted some of our mortgage fromI/O to repayment which gave us the guarantees of paying off that we wanted.

Stigofthedump_2

getmore4less wrote: »

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.

The S&S ISA was set up with the sole intention of paying the I/O part mortgage, we have other savings so as this has reached it's goal we are happy to withdraw and repay thus reducing overall mort amount adn term.

holly_hobby wrote: »

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%.

Holly

If we 'ignore' the potential changes in growth of the S&S ISA and look at this as a cash amount - clearly if the value has dropped by the time we withdraw the amount then we would not continue with it - in fact there was some mention there about needing £30,900 - which makes sense and we'd do that. I think we would be more comfortable reducing the whole amount we owe by 1/3 and also saving interest, rather than the potential gains we would make in growth.

JimmyTheWig wrote: »

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.

ERC will not change anytime in the next 15 months - confirmed with lender.
We can continue to overpay by the £500 monthly, plus we can (and intend to) opt to NOT have our monthly repayments recalculated which would efectively mean we could overpay approx £200 more then we need to - surely that's good isnt it?

Stigofthedump_2

JimmyTheWig wrote: »

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.

Please try again in more simple terms I have to say I've struggled massively keeping up with all the comments, they are fab and I'm chuffed that you have all discussed this topic so heavily but for a mere mortal with nothing but a maths O'level 30 years ago I'ts all a bit much to take in!

Stigofthedump_2

JimmyTheWig wrote: »

Yes, it would be nice if the person we were helping was going to read all of this!
In any event it has been an interesting intellectual problem and maybe in the future others in a similar boat will stumble across it.

Guys I'm definitely reading all of these - thank you!!

holly_hobby wrote: »

However whether they would be able to souce a sufficient net rate of return on an no/short notice/term account over the term of just a 15 mths will I feel be difficult in todays market. (notwithstanding the fact that we don't yet know if they are HRT or just BRTs (basic rate taxpayers).


Of course if the OPs SS ISA has suffered a change in fortunes since their orig post , then this may have all become a little academic at the present time ....!!

H

We're both BRT's
Withdrawal of theS&S ISA would not happen if value has dropped at the time of withdrawal request.

JimmyTheWig wrote: »

[I'm not as convinced as you that they have a very conservative attitude to risk .

I would say in some ways we are fairly risk adverse ie we want to reduce our overall debt asap. But there's an element of us to wanting to make a bit of money as well as we go along - a bit speculative (ie we have a few premium bonds 'just in case!'.
We're careful with our money and I hate paying interest!
Does that clarify at all?

holly_hobby wrote: »

Her comment re "bottling it and cashing it in" - is in respect to the fact that not all providers on the uphold of a complaint, automatically surrender the endowment as part of the compensation payment made. But leave it up to the LA if they wish to maintain the contract, now being aware of the risk staus i.e not gted to meet target figure. It appears that the OP was anxious re this aspect, and that is why they surrendered - again supporting a low/cautious ATR.
Holly

CORRECT!

JimmyTheWig

Thanks for all the responses, OP. Sorry I suggested you might not come back!

Have you asked your lender if you can switch the interest-only mortgage to repayment?
Would there be a fee for doing this?
What would the shortest term they would allow you to do it in?