ISA or Mortgage???

KLB18

If I were to have approx £400 per month to do something sensible with, would it be best that I overpay on my mortgage or pay it into an ISA and build a lump sum? Thanks in advance..

tibbles209

Lots more info needed;

-What age are you?
-Do you have an emergency fund?
-What pension provision do you have?
-Do you have any debts other than mortgage?
-How big is the mortgage? How much equity do you have?
-What percentage interest are you paying on the mortgage? Do you have a fixed rate? Are overpayments permitted?
-What other savings and investments do you have?
-What financial goals do you have? Is there anything you would like to save for?

capital0ne

This maybe too simplistic

Mortgage 2% - ISA 3% go for ISA

Mortgage 2% - ISA 1% go for mortgage

What about pensions?

KLB18

Thanks for your reply:
1. Im 39
2. Yes have emergency fund
3. Have a decent pension, but only paying 5% plus employee contibution
4. No other debts
5. 120, 000 mortgage, equity 160, 000
6. Fixed rate and yes can overpay, rate 1.32%
7. Just an ISA which is my emergency fund
8. Financial goal is to not waste the pay-rise I'm about to get on rubbish, and ultimately be a bit more time rich by the time I'm 55, therefore not having to work and earn at the rate I do now but still be able to live a holiday rich life etc.

Thanks in advance for any help/ advice, have done financial review and deployed other bits of money into 'now' spending increased holiday fund etc., but want to use the excess wisely.

Paul_DNAP

I would be thinking of putting some of that pay rise into AVC into the pension scheme, at least £100 of it. (When I did this I set my AVC to a %age of my pay not a fixed £ amount).

And although right now you could get better returns on savings than your 1.32% mortgage is costing you, I would consider that paying it down would be a good option. When (if?) interest rates do start to rise again they will impact mortgages long before savings, and therefore paying it down now will be preparing for when your current fix ends.

As for the rest, I'd cycle it through one of those high rate regular saver schemes (do you have access to one of the 5% ones linked to your bank?) and then pop it in with next year's ISA allowance when it matures, not straight into ISA this year.

MallyGirl

KLB18 wrote: »

8. Financial goal is to not waste the pay-rise I'm about to get on rubbish, and ultimately be a bit more time rich by the time I'm 55, therefore not having to work and earn at the rate I do now but still be able to live a holiday rich life etc.

If you are a high rate tax payer then any extra you put in your pension benefits from 40% tax relief. That beats most other options you are talking about hands down. Eevn 20% for a basic rate tax payer is better.
If your employer does salary sacrifice then paying the extra into a pension ios even better than that due to NI saving - 42% and 32% respectively.

eMundey

You could have a look at a Lifetime ISA.
A lifetime ISA is a savings account with a cap of £4,000 per financial year to which the government will give you 25% extra of what you have already saved (So if you pay in the allowed £4,000, you will receive £1,000 from the government extra) These can be used for first time buyers (Which I assume is not applicable in your case considering you have a mortgage!) but also for saving towards a pension! (I would check with your workplace pension to see if it will effect this) but it is a great opportunity if you have some spare cash.
You have an annual limit of £20,000 for ISA's also so it can coincide with the ISA you currently have.
Hurry though, you cannot open a Lifetime ISA when you are 40 or over so you have a year to do so! You can deposit from £1 up to £4,000 each tax year before your 50th birthday.