I have savings to pay off mortgage - but should I?

davenottingham

Hi
I'm 38 with a mortgage of £43,000.
I have ISA savings of approx. £46,000. This is my 'pension' fund as I do not contribute to a pension (Basic Rate tax payer/no employer contribution scheme to take advantage of).
I also have other savings of approx £19,000.
Therefore my total savings of £65,000 could make me mortgage free.
However, that would mean eating into my ISA 'pension' savings pot.

Has the forum any suggestions as to what my main considerations should be in trying to make a decision?
Many thanks
D

VoucherMan

My first thought would be

Once you've paid off the mortgage how much will you be able to save per year?

Once you take it out of the ISA you can only put so much back in so you could risk losing tax free status on more of your savings.

davenottingham

I could probably save about £12,000 per year if I paid off my mortgage. So more than twice the Cash ISA limit (assuming I'm still working!).
So yes I would be putting money away in taxable savings once I have used up the cash ISA allowance. Which is less efficient than having all the ISA money tax free in the bank at the moment.

DreamsComeTrue_2

Hi Dave, I would probably pay off mortgage or most of it if I were you. Your savings are very healthy and should cover any unexpected bills, emergencies, etc. You are young at 38 and if you are in good health and stable employment it should give you many years to build your savings again without paying interest into someone's pocket. Some people leave the mortgage open with a small amount there which enables them to borrow more if they need in the future. I will subscribe to your thread. You certainly have got good money management skills having built these savings.

davenottingham

Thanks for your comment DCT.
I was very lucky to buy a flat cheaply before property prices rocketed and that good fortune of a low mortgage has been a godsend ever since.
I do have reservations about dipping into the majority of my tax free pension pot savings to pay off the mortgage though.

HappyMJ

davenottingham wrote: »

Thanks for your comment DCT.
I was very lucky to buy a flat cheaply before property prices rocketed and that good fortune of a low mortgage has been a godsend ever since.
I do have reservations about dipping into the majority of my tax free pension pot savings to pay off the mortgage though.

So would I. Does the ISA interest rate pay around the same or more than what is being charged on the mortgage? If it's around the same I'd just leave it all as it is as you won't be much better off by paying it off.

davenottingham

ISA Rate is 3.3%
Mortgage will be (hopefuily if all goes through in 3 weeks)- a lifetime tracker @2.09% above BoE Base Rate- 2.59%

[Deleted User]

Is the £19,000 that you also have in savings in an ISA pot too? If not, then consider paying this towards the mortgage which would leave you with a mortgage of £24,000. This is only really worthwhile if you are earning less interest (after-tax) than you are paying on your mortgage

Also, are you/could you make regular over-payments to the mortgage at the same time/in lieu of the above

In your position, I would be less inclined to dip into the ISA account as you are relying on it for your pension - once you withdraw it you cannot put it back.

D9

davenottingham

Thanks for your comments D9.

The £19k is a non-ISA account and pays 3.0%.

With the new mortgage I can also make unlimited overpayments and lump sum payments which I was intending to do.

Maybe it's sensible to leave a 6-month contingency amount in the non-ISA account - and use the rest of the savings in this account to pay a lump sum on the mortgage (approx £13k assuming a £6 contingency)?

davenottingham

(£6k contingency that should say!)

MoneySaverLog

Whilst the interest being earned in a ISA is more than what you'd pay on the mortgage I'd keep the mortgage. Swap and pay off the mortgage if the rate you're paying on the mortgage is more than you get in savings.

At which point when you pay the mortgage off you could start to save again, or you could just pay some of it off and keep some for emergencies and save a little more towards paying the rest off later.