Mortgage Free Wannabe - What to do with savings?! 28 August 2007 at 2:26PM in Mortgage-free wannabe 2 replies 598 views

Tweetinat

Hello! Looking for some advice on the following:

Situation:

Offset Mortgage Balance (repayment type): £89,000
Monthly payments: £600
Monthly overpayments (against mortgage, not into savings): £900
Linked mortgage savings A/C balance: £66,000

So we’re paying interest on £23,000.

We also have ISA savings of:

Me: £22,000
Fiancé: £15,000

We’re both higher rate taxpayers.

Options:

1. We keep the situation ‘As Is’ and continue to overpay the mortgage (reduce the capital) by £900/m, paying interest on £23,000 of mortgage.
2. We transfer our ISA savings into the Mortgage savings account thereby having no interest to pay on the mortgage. We would then repay the mortgage capital by £1500 per month, but still have access to our savings. This is an important requirement.

Which would you do? I’ve read somewhere on this forum that it’s best to keep any ISA savings intact but I’m really not sure whether this is the best thing to do in our specific situation. Any advice gratefully received!

Tweetinat

Is there really no-one with any advice on here?

jamesd

The ISA tax benefits will last much longer than the mortgage and it's a use it or lose it allowance. As higher rate tax payers you should be using the 7000 per person per year ISA allowance fully before doing any overpaying on the mortgage. Including withdrawing from the existing offset account to do it if for some reason you can't fund it out of income.

Each of you can get 6.4% on cash ISA savings from Ruffler Bank. If your mortgage is at a rate below this you lose money even over the short term by transferring the money to the mortgage instead of this ISA.

You need to be looking at the difference between rates of return, not just at "how much mortage interest am I saving" while not factoring in alternative uses for the money that can make you more than the mortgage interest rate.