ISA vs Offset Mortgage

supahoopsa_2

Hi,

I am looking too see if it is worth investing in an ISA before year end deadline.

I have an offset mortgage £145K with Lloyds/TSB and approx £30K in savings reducing my interest payments. Am in 40% tax bracket so this is ideal for me as I dont pay tax on my interest as effectively I dont get any interest on my savings.

Im assuming that it is not worth getting a cash ISA as very few would offer a higher interest rate than my mortgage. A share ISA might be worth while if I can pick a good one and can get a return greater than 6-7%.

Any comments/suggesations would be appreciated.

paul666

If it's a case of 'not loosing' the tax free wrapper and you expect to still have the ISA long after you've paid off the house then yeah - maybe. Otherwise, put the cash towards paying of the house.

Many investors would gladly take a guaranteed, tax-free 5.75% return on their money.

Warren Buffet, The most successfull investor in the USA, always advised people to clear all their debts before speculating in the markets...

lipidicman

The problem with offsets is that the rates are often higher - requiring a large savings pot to make them cheaper and effectively reducing that nice 'tax free' return on your savings they trumpet. They rely on the fact that it is 'easy' and keeps you doing all your business with one company

So you could beat it with a cheaper mortgage and an ISA which outpays it. I agree with the earlier post that it might also be worthwhile getting the ISA if you expect to hold it longer than the mortgage too. It depends on your outlook, they are only gauranteed to be around until 2010 at the mo (thanks Gordo!)

At the moment I favour flexible mortgages where you can get back at your overpayments for free - I am going to look into these and see if I can get a good deal.

david78

You could remortgage to IF then offset your cash ISA against your mortgage.

I have a flexible mortgage and what I do is pay my ISA savings into there. I then transfer them to a cash ISA on April 5th. (I open the cash ISA early with £1 so there is no risk I will miss the deadline.)

I have my ISA savings for 2005/06 and 2006/07 already in a tax free wrapper