What would you do?!

andyf72

First post here as I need some advice/opinion from 'real' people!

Here's a summary of our (me & wife, 2 young kids) finances:

Mortgage of ~£83K in a very preferential ScottishWidows flexible interest only product (tracks at 0.75% above BOE base rate. This is protected for the duration!). 14 years to go on this.

Repayment vehicles for capital are a couple of ISAs. These have been running in their current form since late 2006 so not a great period for growth and low single figure % has been achieved but hopefully some value built in if/when things pick up in the markets... Current value is £30K and we pay £200 per month into these. A projection of 7% growth over the remaining mortgage term returns around £72K, so a bit of a shortfall.

However... we currently have £50K capital which we use to offset the mortgage. Given we are offsetting 60% of the debt each month this should chip away a wee bit at the debt and hopefully claw back some of the shortfall.

My wife is having a bit of a 'moment' over the bad performance of the ISAs and the shortfall. She's started talking about the £200 per month being better under the mattress than keep investing in the markets. I am hoping noone will recommend that strategy... But, am I being naive not worrying due to the offsetting, benefits of £ cost averaging and a future growth in the markets...

I suppose main thin is what to do with the £50K. We wouldn't want to tie it all up as we are not in a position to save more at the moment so it's needed for the home or car etc. if we need funds. But, is it working hardest in offsetting the mortgage or is it better elsewhere (FYI I am a high rate tax payer, my wife is standard rate). Things are a bit tight at the mo as we took the decision a couple of years ago for my wife to leave work for the kids' sake. Is there any way a sum of £50K can generate any reasonable income as this might be a better short-term option for us?!

Sorry for the rambling post, but hopefully you get the idea. All comments and suggestions welcome!

psychic_teabag

I've never had an offset mortgage, but as far as I can tell, by using the cash to offset, you are avoiding interest at 1.25%. You'd get more than that in a taxable instant-access savings account even in your own name (higher-rate tax), and more still in your wife's name. And more still with some of it in a fixed-term rather than instant-access account.

gadgetmind

andyf72 wrote: »

My wife is having a bit of a 'moment' over the bad performance of the ISAs and the shortfall. She's started talking about the £200 per month being better under the mattress than keep investing in the markets. I am hoping noone will recommend that strategy...

You're doing the right thing. I know it's hard, but keep reminding her how long prices are *good* for people who are investing!

As for offsetting, it's a shame you didn't go for the NS&I index linkers when they were available. There is now little chance of them this summer, but you never know.

Voyager2002

Since your interest rate is so low, off-setting (or making early repayments) does not make much sense. Personally I would put half of it into equities (but different ones from those you own through your ISAs), perhaps concentrating on companies that pay high dividends if income is important to you. I would put the other half into a secure investment paying the highest rate of interest available (held in the wife's name to reduce the tax bill).

kidmugsy

There's no point paying off or offsetting a mortgage at 1.25%. You could get 3% or more in a cash ISA and your wife could get about 2.4% net in a savings account.

Unless your house needs a lot of work or your tastes run to expensive cars, your £80k should easily grow to £83 k without any need to risk much of it in equities. In your shoes I'd be looking for tracker accounts that would guarantee that you're earning more than the mortgage costs you. A friend of mine is very pleased with a tracker Cash ISA he opened a few years ago that pays BoE + 2.75%. It's fixed term but that doesn't matter to him since it's mentally chalked off against his mortgage.

guitarman001

Are you telling me your mortgage rate is 0.75% above BoE rate for the ENTIRE mortgage length, be it 14 years or more? How did you manage that!?

This has probably been asked a thousand times but... is it worth having ANY sort of savings/investment when you have such a big debt (mortgage) to pay off?

xylophone

I think that you need to be sure that you can pay off the mortgage - supposing there were a crash at the vital moment?

You say that your wife is a "standard rate" taxpayer but you also say that she does not earn an income? Does she have unearned income that you haven't mentioned?

Gordon_the_Moron

If in 5 years you have only achieved single figure growth on your ISA(s) then you have not been getting the best deals. My 2008/2009 ISA which had a £3600 limit on it, it now stands at between £3990 and £4000. I did not fill it in April 08 either, I paid into at £300 per month through the entire tax year. So in less than 4 years I've earned over 10%.

p00hsticks

Gordon_the_Moron wrote: »

If in 5 years you have only achieved single figure growth on your ISA(s) then you have not been getting the best deals. My 2008/2009 ISA which had a £3600 limit on it, it now stands at between £3990 and £4000. I did not fill it in April 08 either, I paid into at £300 per month through the entire tax year. So in less than 4 years I've earned over 10%.

I'm guessing that you are talking about a cash Isa though, while the OPs reference to the markets suggests that his are Stocks and Shares ones, which tradition says should be the better long term bet.