Mortgage or ISA or Both

dkb

Hi
I'm not sure this is the correct place to post so apologies if not.


I currently have a BTL mortgage (2 year fixed on 4%) owing 92000 on a 140000 property. I have moved to my parents for the two years. I have £5000 in an ISA (only 2%).


My question is does this plan seem ok? I have quite a lot of disposable income (around £1000 a month) so my plan is to pay £500 off my mortgage and add £500 to my ISA.


I know the usual advice is pay off your biggest debt first and the mortgage is a big debt and higher interest rate but I want to have some sort of support fund.


Does this sound a reasonable plan?

questionss

Look on the savings & investment board and the bank accounts board too - there are better interest rates in normal accounts than that.
But yes having a decent accessible saved amount makes sense.

marathonic

dkb wrote: »

Hi
I'm not sure this is the correct place to post so apologies if not.


I currently have a BTL mortgage (2 year fixed on 4%) owing 92000 on a 140000 property. I have moved to my parents for the two years. I have £5000 in an ISA (only 2%).


My question is does this plan seem ok? I have quite a lot of disposable income (around £1000 a month) so my plan is to pay £500 off my mortgage and add £500 to my ISA.


I know the usual advice is pay off your biggest debt first and the mortgage is a big debt and higher interest rate but I want to have some sort of support fund.


Does this sound a reasonable plan?

This will depend on your tax rate but I'd be inclined to keep the mortgage and put the whole lot of the disposable income into savings.

Your mortgage is only costing you 3.2% if you're a lower rate tax payer and 2.4% if you're a higher rate tax payer - when you consider that you can offset mortgage interest against your tax bull.

You should be able to get very close to these rates in savings - I'd consider the slight difference a small price to pay for the significantly increased flexibility of having cash readily available.

In saying all of the above, I'd go for an S&S ISA for all but about 6 months worth of living expenses kept in a Cash ISA.

audigex

I'd agree with Marathonic: done properly, there won't be much difference in "real" interest rates, and you have the flexibility of having the cash available.

You can always start moving some of the cash into your mortgage once you've built up a comfortable fund.

And if you find you misjudged the balance of mortgage-savings, you retain the flexibility of dumping your savings into the mortgage after the fixed rate finishes anyway, which is easier than increasing mortgage if you get it wrong in the other direction.

dkb

Thanks for your replies