Paying off mortgage and ISA's

ndtaylor

In short I have made an investment in the stock market which is now worth approx £250k in a stocks and shares ISA. This is enough to pay off my mortgage and put some change in my back pocket. This leads me to some questions.

My mortgage deal I re-signed in Jan 26 for 2yrs which is £200k @ 3.45%

If I was to sell my shares now I understand that I could then ISA transfer that to a standard Cash ISA in the new financial year. I opened a Stocks and Shares ISA this year 25/26 and hit my limit.

Information seems conflicting on who offers transfers like this. Is there any particular wording that I should be looking out for?

My belief is then if the interest rate for 1 year is better than the mortgage rate I would be better saving the £200k for one year and getting the tax free interest than paying off the mortgage straight away and being hit with the early repayment charge which is going to be £4k. Plus whatever other fees they put on top.

Are my thoughts correct?

MWT

Look at the details on each ISA you are considering as not all allow transfers in, and even if they do, often the ones offering the highest rate will not pay the top rate on transfers in.

The rates are usually a combination of a variable rate and a bonus for the first 12 months, that bonus is often not paid on transfers.

Also remember that the rate is variable and if it goes down that would erode your margin, and it is likely to be no more than 1% or so above your fixed mortgage rate to start with…

ndtaylor

Thanks MWT thats the exact sort of advise that I was looking for. I will continue my search and let you know what I conclude with.

poseidon1

https://forums.moneysavingexpert.com/discussion/6655352/paying-off-mortgage-and-isa-039-s

Frankly I would query ever wiping out your valuable accumulated ISA pot, when you can use the tax free income to help fund your annual mortgage payments.

If you are on a capital repayment mortgage, why not keep your ISA intact for it to generate annual income until mortgage paid off.

No idea of your age and income tax status, but having a large and increasing tax free ISA pot to supplement future retirement plans is an invaluable commodity you should not be ploughing into your non income producing home, if you have alternatives.

jimjames

If I was to sell my shares now I understand that I could then ISA transfer that to a standard Cash ISA in the new financial year. I opened a Stocks and Shares ISA this year 25/26 and hit my limit.

That's not correct, transfers can be done at any time so you don't need to wait till the next tax year.

However I agree with Poseidon1, I had similar ISA and just let it grow, having a good tax exempt lump sum that could pay the mortgage off if needed was much better to me than actually paying it off and losing that tax exempt status. To get it back into an ISA again would take at least 10 years. I've still got the ISA but mortgage was cleared a couple of years ago.

MWT

https://forums.moneysavingexpert.com/discussion/comment/81887102#Comment_81887102

All true of course, but we don't know the nature of the growth in value, the particular investments and the OP's tolerance for risk if the stock market takes a dive.

poseidon1

https://forums.moneysavingexpert.com/discussion/comment/81887146#Comment_81887146

The OP did intimate an intent to transfer his S & S isa to a cash variant, thereby locking in gains made thus far on a zero risk basis.

The cash isa may well then remain static in value if interest used as I suggest, but still a more desirable outcome than effectively ploughing all that tax free capital into his non income producing house.

@jimjames' experience is relevant in that regard albeit he left his to grow, but his point about how long it would take to rebuild the isa is well made.

Generally, Cash/ Stocks and Shares ISA coupled with a capital repayment mortgage is a powerful combination to build long term wealth and security. The ISA should not be squandered in that regard.

jimjames

https://forums.moneysavingexpert.com/discussion/comment/81887146#Comment_81887146

I was assuming (maybe incorrectly) that the OP has the appropriate tolerance for risk for the investments that they've built up over a decent period of time which would have included some big drops in the markets. It's a very different situation compared to someone who inherits £250k and asks if they should invest or pay off their mortgage. However if their risk profile has changed then cash may be an appropriate option but I would still caution about losing that ISA wrapper for such an amount.

MWT

https://forums.moneysavingexpert.com/discussion/comment/81889659#Comment_81889659

This is why it is always such a personal choice, for me I would never have given up the S&S aspect or the ISA wrapper, but equally paying the mortgage each month was never a burden and I never worried about job security.

Others I know worried constantly about employment, and the risk of not making the mortgage payments and losing the house, so for them not having a mortgage at all would have been a huge relief…

Always a personal choice and the OP is indeed fortunately to have the means to choose…