Leave in cash ISA or overpay mortgage

paulcalf_2

20K in an ISA - 1.5% interest p.a, drops to 1% at end of March 14
28K Mortgage - 2.5% p.a, (tracks base rate +2%) 8 years remaining

My question is: would I be better paying this 20K off my mortgage than leaving it in an ISA

The best ISA rate that allows transfers is 1.75% (so i'd earn 350 pa tax free)

Mortgage interest on 20K would cost me approx £500 p.a

So it seems i'd be at least £150 pa better off paying the 20k off my mortgage - but what do the experts think?

The mortgage allows overpayments, I could get any overpayments back at the same rate, in effect i could use it like a savings account.

The downside is I wouldn't have any cash in ISA's if the interest rates drastically improve, but i can't see this happening for a while.

I look forward to your replies.

Thanks

Paul

atush

Is this your only 20K? If so you don't want to have all your money in your house, you need an emergency pot (unless your mtg allows you to draw back overpayments).

If you have other cash, I would consider putting some of the 20K cash isas into S&S isas so you don't lose the wrapper?

basically, you dont' have to use all the 20K one way or another but could split it.

racing_blue

paulcalf wrote: »

So it seems i'd be at least £150 pa better off paying the 20k off my mortgage - but what do the experts think?

I'm not an expert. Would you consider fixing your mortgage rate? If so, there is a punt to be had on interest rates rising and your ISA ouperforming during the next 8 years. Or longer, why not, if delivering annual profit.

Gizmo247

I'm in a similar position. Got 12K in a Santander cash ISA and 12K left on the mortgage with 15 years to run. The eligibility requirements for my Santander Zero account is requiring me keep the ISA, even though it is costing me £60pa in lost interest.

I'm now pretty much resigned to dumping the ISA into my mortgage and risk losing the Zero account. But I have an offset mortgage so I don't need to ask to get the money back for an emergency.

I would be weary about putting your money into something like a mortgage account where you cannot get it back due to a change of circumstances (e.g. job loss). Draw-down of over-payments seem to be at the discretion of the lender rather than a right of the borrower.

paulcalf_2

atush: this is my only 20k emergency pot, but if i have an emergency and need it I can get it back from my mortgage (I will get this in writing from the mortgage company, before doing anything).

racing blue: i don't think there are many fixes that beat 2.5% (2% over base rate), without paying large fees. Once you take into account a large fee I can't see it beating the deal i'm on. Balance is £28k and less than 8 years remaining

Gizmo, nice to know others are in same thought process, thanks for the caution about mortgage lenders, I will ensure i can always access my money.

Thanks for all the replies so far

kidmugsy

paulcalf wrote: »

28K Mortgage - 2.5% p.a, (tracks base rate +2%) 8 years remaining

My question is: would I be better paying this 20K off my mortgage ...

That's just what we did and it worked out very well. If memory serves we borrowed back two, or maybe three, times before finally paying the whole thing off.

xxdeebeexx

Your mortgage monthly payments must be quite small, maybe you could overpay each month to start chipping away at the 20k.
It's amazing how an extra £40 or £50 per month quickly makes a difference.


Can your ISA account be split?
Another thought is to pay some of the mortgage off - £5000- for example but keep your monthly payments the same so that you are chipping away at the capital.


Surely it doesn't have to be all or nothing?


dx

jimjames

Gizmo247 wrote: »

I would be weary about putting your money into something like a mortgage account where you cannot get it back due to a change of circumstances (e.g. job loss). Draw-down of over-payments seem to be at the discretion of the lender rather than a right of the borrower.

With a 2.5% rate I'm guessing the OP is with Nationwide.

Their draw down is totally flexible and you can get the money whenever you want. We've taken large sums back out again twice over the last few years with no issues.

Trentenders

jimjames wrote: »

With a 2.5% rate I'm guessing the OP is with Nationwide.

That's some assumption.... I'm on 2.5% (base + 2%) and I'm not with N/wide.

PeacefulWaters

jimjames wrote: »

With a 2.5% rate I'm guessing the OP is with Nationwide.

Their draw down is totally flexible and you can get the money whenever you want. We've taken large sums back out again twice over the last few years with no issues.

I have read on the mortgages forum that they now telephone interview to assess affordability before release of funds.

planteria

my first thought would be neither....move the £20k into a Stocks & Shares ISA and set about consistently adding to that + paying the mortgage down on a regular basis.