should i pay off more of my mortgage using my ISA??

hockeypro

ill try and simplify as easy as i can.

iv got an 85k mortgage. paying £555 a month fixed for the next 7 years (at roughly 5.14% if i remember correctly)
iv got 10k in savings which is my contingency if anything goes very wrong!! I do not and will not touch that!
But iv got 25k in my ISA earning me nothing!

Question is iv overpaid my max for this mortgage year but should i use my ISA to reduce it more now by so get a penalty or annually pay off the max 10% they allow by dipping into my ISA and trying to save more???

Decisions decisions

Thrugelmir

Ask your lender if they'll reduce your mortgage term. Thereby increasing your monthly repayments.

Herzlos

When does your mortgage year renew and how much is the penalty?

Why is the 25K ISA earning you nothing? Shouldn't you be getting about 3-4% back on it?

holly_hobby

The main deciding factors will depend upon on ...

• your tax banding (basic rate or higher rate)
• what the net return of your ISA is
• what your mge erp's are (os of annual permitted lump sum redemptions)
• what kind of mge product you have i.e fixed, or a variable rate such as a tracker or discount
• whether you are happy to absorb mge penalties or don't mind paying a higher monthly mge repayment fig for the benefit of retaining access to your 25k ISA funds

Holly

northerner999

Also consider potential interest rate rises on your ISA pot in future.
If you withdrew a significant amount now, then it will take years to rebuild. If, in 10 six years' time, ISA rates are at 6% and mortgages are are 2% you will be missing out on compound interest.

That may sound far-fetched right now, but I remortgaged in Dec 2007 at what seemed an acceptable rate at the time, fixing for three years, then a few short months later this credit crunch thing no one had predicted took hold.

I guess my point is make sure you understand that an ISA at a low interest rate still has huge benefits due to its tax-free nature, even if the gains may not be for years down the line.