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

Joe_Bloggs

You can get 4.5% fixed for five years 4.25% for three in a cash ISA. Consider splitting via partial transfer your ISAs so you can make the most of the best rates that are available. I am saying don't put all your eggs in one basket but 5K here 10K there where the rates are best. There are penalties for withdrawals ,with these, so I aim to have my ISAs staggered to mature every six months.

I got the now ex Flexclusive 4.25% instant access. I can only afford to use it as a regular saver at present. I tended to save up for the ISA throughout the year.

Good luck with the new mortgage and rate. It looks like your savings/pension should be your primary target. When do you think the following will affect you ?

http://www.pensionsadvisoryservice.org.uk/future-pension-reforms/automatic-enrolment

J_B.

p00hsticks

davenottingham wrote: »

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

Without knowing more about your intentions for retirement, in your place my main concern would be not whether to use your savings to pay off your mortage or not, but rather that, at the age the fact that your 'pension' pot consists soley of cash savings of £46,000. IMHO you're heading for a bleak retirement unless you are planning to downsize significantly, can get that money to work for you much better than it is at present and/or add ot it significantly over the next 20 or so years.

HappyMJ

p00hsticks wrote: »

Without knowing more about your intentions for retirement, in your place my main concern would be not whether to use your savings to pay off your mortage or not, but rather that, at the age the fact that your 'pension' pot consists soley of cash savings of £46,000. IMHO you're heading for a bleak retirement unless you are planning to downsize significantly, can get that money to work for you much better than it is at present and/or add ot it significantly over the next 20 or so years.

OP is 38...the same age as me and has £65,000 in total. I think that's quite good. That's £60,000 more than I have as I am paying off loans, borrowing at low rates and investing in high interest accounts rather than save into pensions. How much should somebody have at 38?

davenottingham

p00hsticks wrote: »

Without knowing more about your intentions for retirement, in your place my main concern would be not whether to use your savings to pay off your mortage or not, but rather that, at the age the fact that your 'pension' pot consists soley of cash savings of £46,000. IMHO you're heading for a bleak retirement unless you are planning to downsize significantly, can get that money to work for you much better than it is at present and/or add ot it significantly over the next 20 or so years.

That's come as a suprise- I thought I was doing OK with the pension savings.

Sepa74

I agree that you really need to do a sanity check of your retirement plans, and definitely DON'T use the ISA savings to pay off your mortgage. £46K in an ISA at 38 (assuming you continue to pay the maximum in until your retirement day) may be enough to retire on, but it may not be either - no one on here can tell you. You also need to think about what would happen if you became incapacitated, and whether you need some sort of insurance. I also suspect should you think about setting up a private pension - you don't have to do this through your employer, but the government will still refund basic-rate tax into the pension to boost the pot.

The benefit private pensions have over ISAs is they are paid out of your pre-tax income rather than post-tax income, so in theory they grow faster. However once you retire the ISA will provide you with tax free income, while the pension income will be taxed. This is why they are both valuable sources of retirement funding.

Over an average life-time you will pay less tax if you save in a proper pension than if you save in ISAs.

Your mortgage is moving to a very low rate of interest, and you can get much better rates on your savings, so keep saving until such time as the mortgage rate is higher than the savings rate.

Make sure you have an emergency fund of 6 months expenditure.

My biggest piece of advice is to go and see an independent financial advisor and discuss your financial affairs holistically - I make a point of doing this every 5 years or so, just to make sure I'm still on track.

I hope this is helpful.

Spiggle

davenottingham wrote: »

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)?

Hi Dave,

Congratulations on being extremely level headed and sensible to be in the position you're in. I take on board the other comments re pensions but have nothing to offer in that respect.

However, you are obviously saving very effectively whilst paying your mortgage at the current rate and assuming this will be lower once your remortgage goes through I would definitely go with the plan I have quoted above.

In addition, I would pay the new remortgage at exactly the same monthly repayment amount that you pay on the existing mortgage rather than the remortgage. Combining both of these options means a much smaller outstanding balance at £30k and you'll be making, hopefully considerable, inroads every month off the capital amount.

If you are looking for a further savings account (not ISA), the Monmouthshire BS has it's flexible saver 2 into which you may save up to £1k per month and provided it's kept open for 12 months earns a bonus that results in a net interest of 3.2% over the year.

I hope that may be of some use and once again congratulate you on your excellent financial control so far.

All the best,
Spigs

p00hsticks

HappyMJ wrote: »

investing in high interest accounts rather than save into pensions.

To use the more correct terminology, you 'save' in high interest accounts and 'invest' in pensions / stocks and shares etc.

£46,000 sound a lot at the age of 38, but putting it into a cash savings account, even a tax free one, means that at the very best it is only just keeping pace with inflation.

I agree you need a reasonable amount of cash for emergencies, but the general thinking is that for long term growth you should be looking to invest rather than save.

davenottingham

Thanks for all your helpful insights.

The consensus appears to be to not touch the ISA to pay off the mortgage. I'll heed your advice!

Joe Bloggs- yes there are better savings rates around than the ones I am on. I should at least look at a better ISA rate, as I could fix at a higher rate as I will hopefully have no need to draw on it in the near future.

The Pensions vs ISA's savings debate comes up often. Pensions do come in for criticism (fees, unknown future annuity rates and pension pot amounts etc) which is why I have stuck with ISA savings for now. In the past, where previous employers have contributed, I have joined their scheme (albeit for couple of years whilst employed there). When auto-enrolment begins I'll do the same and not opt out.

Sepa74- I have life cover and critical illness cover (£60,000) and mortgage protection cover (for 12 months if required).

Spiggle- The new remortgage rate will make a difference (from 6.45% to 2.59%) - and I was going to continue paying the same monthly amount, thus overpaying. I'd best fill up the ISA first and anything left I will overpay onto the mortgage.

mcja

I dont know much about them apart from the fact it works for us, but have a look at an offset mortgage. Interest rates arent great but would mean you aren;t paying any off on your mortgage until you are ready to.

Dont know if this makes sense?!!?

Joe_Bloggs

@davenottingham
I don't know when variable ISA rates are going to go up. Since you can't change the interest on a fixed rate it poses a risk of being poor value. You can't get the money out without a penalty so liquidity is lost for the higher rate. To offset the danger of increasing interest rates and improve liquidity I split the maturity dates amongst smaller ISAs.

If rates go up I can shuffle them one by one onto the higher rate as they mature. I also have an instant access ISA if I need emergency cash. This is easily transformed into a fixed ISA once it is not needed/(the bonus vanishes). I may only have to break into one of the fixed ISAs and pay the interest penalty on that if times are really bad.

What is the point of mortgage payment protection cover when you have more than your mortgage in savings and hopefully get the new rate?

J_B.