Take out more mortgage so we can keep our ISAs?

BikingBud

jojo_1982 said:

jojo_1982 said:

We are looking to purchase a property. We have 120k in ISAs that we were planning on using as part of the deposit. Would we be better to leave this in the ISAs and take out more mortgage?

We are both higher rate tax payers so it really helps not paying tax on the interest we get from this money. We would easily be able to borrow/afford the 120k extra.

Well you're not paying tax on the interest either way (assuming its your residential mortgage not a BTL). In an ISA, there's no tax, and the interest cost of your home has not tax relief. 

In terms of interest rates, if you can get a fix for the mortgage that's less than the ISA, then you're better off by keeping the money in an ISA, but you're taking the risk that if rates fall, your mortgage is fixed but your ISA will earn less. 

The main question is after taking out the mortgage, do you expect to have excess cash from income, which you'd want to either replenish the ISAs or overpay the mortgage? 
 *  If yes, then which one has the higher allowance to do that - ISA limited by 20k, mortgage limited usually by 10% but check. 
 *  If no, then it makes little difference.. after your fix runs out, you could make the same assessment based on interest rates and decide whether to use the ISA money to pay a chunk of the mortgage off. 

I think I possibly didn't explain it that well, sorry. At the moment we're paying quite a chunk of tax on interest on our other savings, so it's nice having a chunk in ISAs. If we cash them in so we have a much smaller mortgage, we'd just pay it off more quickly and of course then we'd be able to save a lot more after as we wouldn't have the mortgage to pay. However we wouldn't be able to save that in ISAs (as they would already be maxed out each year) so might be worse off?
We should have enough cash from income to fill ISAs even while paying the mortgage, and I saw Martin explaining that the limit might be reduced which would mean we'd then only be able to save a tiny amount tax free. 
Most mortgages I've looked at would only allow 10% overpayment per year. That would be roughly 18k.

Can you make other aspects of your income more tax efficient eg paying more into pension to reduce PAYE and kick mortgage debt down the road?

MWT

jojo_1982 said:

jojo_1982 said:

We are looking to purchase a property. We have 120k in ISAs that we were planning on using as part of the deposit. Would we be better to leave this in the ISAs and take out more mortgage?

We are both higher rate tax payers so it really helps not paying tax on the interest we get from this money. We would easily be able to borrow/afford the 120k extra.

Well you're not paying tax on the interest either way (assuming its your residential mortgage not a BTL). In an ISA, there's no tax, and the interest cost of your home has not tax relief. 

In terms of interest rates, if you can get a fix for the mortgage that's less than the ISA, then you're better off by keeping the money in an ISA, but you're taking the risk that if rates fall, your mortgage is fixed but your ISA will earn less. 

The main question is after taking out the mortgage, do you expect to have excess cash from income, which you'd want to either replenish the ISAs or overpay the mortgage? 
 *  If yes, then which one has the higher allowance to do that - ISA limited by 20k, mortgage limited usually by 10% but check. 
 *  If no, then it makes little difference.. after your fix runs out, you could make the same assessment based on interest rates and decide whether to use the ISA money to pay a chunk of the mortgage off. 

I think I possibly didn't explain it that well, sorry. At the moment we're paying quite a chunk of tax on interest on our other savings, so it's nice having a chunk in ISAs. If we cash them in so we have a much smaller mortgage, we'd just pay it off more quickly and of course then we'd be able to save a lot more after as we wouldn't have the mortgage to pay. However we wouldn't be able to save that in ISAs (as they would already be maxed out each year) so might be worse off?
We should have enough cash from income to fill ISAs even while paying the mortgage, and I saw Martin explaining that the limit might be reduced which would mean we'd then only be able to save a tiny amount tax free. 
Most mortgages I've looked at would only allow 10% overpayment per year. That would be roughly 18k.

Time to talk to a good financial advisor I'd say.

Sounds like you could use some help reducing your tax exposure in general...