A little Advice Please (update)

ydraigcoch

Hi

Thanks for all your advice from my previous post.

http://forums.moneysavingexpert.com/showthread.html?t=576889&highlight=ydraigcoch

Well I said I'd keep you up to date with my progress and so here goes.

I have had my Independant Financial advisor round. He has come up with a couple of suggestions looking at both a normal interest only mortgage and an offset one.

The Normal Interest only mortgage is with the Nationwide and gives me a fixed rate of 5.63% for 5 years. With a setup fee of £499. Based on a loan of £60000 thats £283.84 per month. The total cost of this mortgage is therefore £17030.40. But obviously I still have my £12,000 per year savings to invest.

The other option he gave me was the offset mortgage. He shown me this through the IF Website. This was a Tracker Mortgage with a rate of 0.34% above the B.O.E Base rate. With a setup fee of £799. Paying the interest only would give me a monthly payment of £308.68. But as I would be investing £1000 per month. My payments would decrease month on month. So the overall cost of this type is £10,104.91 over the 5 years. So this is clearly about £7000 cheaper.

But, if I invest my £12,000 wisely, i.e. using my wife's ISA allowance and my own. Over 5 years I would have invested £30,000 in ISAs and based on an interest rate of 6%. This would give me a return of £5340. I think? I would still have another £30000 (or £6000 per year) to invest. So I would think I could make another £3000 in interest if invested wisely over the five years. If this is the case that would make the Nationwide mortgage the better option.

So heres my question! Am I right? Have I thought this through correctly? This stuff makes my head hurt!

I appreciate any opinions. Many Thanks

cornerstone13

Hi, as Mrs Ordinary, we were in a similar situation to you and took the "invest the £12000 and overpay the mortgage each month" route , albeit the savings were in extremely low risk places (eg mini cash ISAs and one year bonds). Our rationale was that whilst still reducing the mortgage, we also had savings behind us so if either of us lost our job, we could use the savings. Plus when the mortgage is paid, the savings pot is still there. Might not be the most sensible, but kept us happy. Our mortgage was a Standard Life Freestyle and we cleared it in August this year

debbie42

I'd go for the flexibility of the offset mortgage (well, I did, actually!)

If you compare it with the 5.35% interest rate on the other one, you'd have to be finding a rate of nearly 9% to beat that, as a higher rate tax payer. OK, so you can use your ISA allowance, but that's for only 3K each p.a.

It's far more flexible: a bit like an overdraft. For me, that thought allows me to "pay off" more of my mortgage because I don't feel I need to have such a big buffer elsewhere for emergencies.

ydraigcoch

Thanks for the replies,

If I use my wife to put away more money in ISAs then that would give me like I say £5340 over 5 years. So all I need is to make another £2000 to beat the offset mortgage.

Is this correct? I appreciate the flexibility of the offset, but also the stability of the Nationwide one is appealing.

ydraigcoch

Any Ideas?