Should I liquidate £215k of ISA to fully offset my mortgage? (~40% LTV)

JamTomorrow

I’m 50 and ~5-7 years from retirement. Given current mortgage rates I’m looking for some perspective on a move I’m considering for my remortgage which is due in a just over a years time. I want to prioritise flexibility and "certainty" over the next few years.

The Situation:

• Mortgage: £215k interest-only at 2.84% (ends Aug 2027).
• House Value: £550k+ (LTV is ~40%).
• ISA: ~£300k currently in global equity trackers.
• Other: I have a bond in my SIPP maturing in 2032 which I’d previously earmarked to pay off the mortgage.

The Plan:

1. Pay down £15k of the mortgage to bring it to £200k.
2. Move to a no-fee, no-ERC (Early Repayment Charge) Offset Tracker.
3. Take £200k out of the ISA and put it in the offset account to bring my monthly interest to £0.
4. Re-invest the "Save": I’d save about £10k–£12k a year in interest. I plan to drip-feed this back into our ISAs over the coming years.
5. Maintain Equity Exposure: I’d sell the £200k 2032 bond and move that money into global equities to make up for the £200k I pulled out of the ISA pot.

My Thinking:

• The "Return": Offsetting at ~5% is a guaranteed, tax-free return. To beat that in a normal account, I’d need to find a much higher gross return.
• Safety Net: Since it’s an offset, I still have access to that £200k if there’s a personal financial crisis. My plan was to retire at 55 and fund 2 years from ISA before I can access SIPP so this would be more difficult (though I could dip into the offset)
• Mortgage Rates drop : If they drop over the next 5 years I could remortgage to a lower rate interest only
• The Downside: I lose the "tax-free wrapper" on that £200k ISA money immediately. It’ll take me and my wife 5 years to get it back in (£40k/year combined) if we remortage, but I will be contributing ~£10k/year into the ISA from mortgage interest saved

The Question: Am I crazy to give up the ISA wrapper for the sake of a guaranteed 5% saving and total liquidity? Has anyone else done this " and regretted it? I don’t want to lock into paying off the £215k mortgage outright and losing flexibility, so I either do the offset route or accept paying £10k-£12k a year interest.

Exodi

JamTomorrow

The Question: Am I crazy to give up the ISA wrapper for the sake of a guaranteed 5% saving and total liquidity?

Personally I'd say yes, you're crazy.

I anticipate the average rate of return of a global equity tracker to be higher than 5% over the long term. We should also be fair and compare it what we expect the average debt rate to be over the life of the mortgage, not just what your next fixed rate might happen to be. If you get your new fix at 3% in a few years time, you can't just put the £200k back into your ISA.

JamTomorrow

I don’t want to lock into paying off the £215k mortgage outright and losing flexibility, so I either do the offset route or accept paying £10k-£12k a year interest.

I think is a 'glass half empty' way of looking at it. Most people expect sensible investment returns to outpace mortgage rates, so while you may pay £10k a year in interest now, you might be hoping to gain £14k a year on your investments at the same time.

poseidon1

Short answer, yes crazy to liquidate an ISA of this size when you have other options.

Although your ISA is currently non income producing, it has the potential to do so and become a very valuable tax free income resource in retirement and beyond if ultimately inherited by a spouse. Also remember the 2% tax uplift on savings income due to take affect on 6 April 2027, rendering ISA income even more valuable.

You mention the potential to access tax free sipp cash as an alternative funding vehicle. That would be my preferred option bearing in mind DC pensions will become liable to IHT after 2027, so holding vast sums there until death, seems distinctly unappealing unless the pension pot passes to an exempt spouse and even then the spouse faces income tax on withdrawals.

webmasterpolo

I would concur, don't sacrifice the ISA wrapper. One potential option - get your S&S ISA into a flexible S&S ISA. This means you can remove the money and put it back within the same tax year without affecting your allowances.

Using this method on 06 April move money from your ISA into the offset, then on the 05 April put it back and repeat. Thus never loosing the ISA allowance you've built up. (note I'd move it back way before to make sure no delays screw you eg 06 March)

This is a very cautious approach. As has been said, the global markets are likely to produce in excess of 5% anyway, so potentially keeping it invested is better financially over time anyway. Of course you can hedge and do 50/50, whatever you feel suits your risk.

HTH

-Web

dunstonh

Other: I have a bond in my SIPP maturing in 2032 which I’d previously earmarked to pay off the mortgage.

SIPs don't mature. You choose to make a withdrawal from them or not

Are you going to be a basic rate tax payer in retirement?

Are you currently working and are you a basic rate or higher rate tax payer at the moment?

If the answer is yes to both of those, then the Pension wrapper beats the ISA wrapper (assuming all pension limits are not exceeded).

So whilst the ISA is a valuable tax-free wrapper, the pension is more valuable. All options should be on the table, not just the two you've mentioned.

MWT

https://forums.moneysavingexpert.com/discussion/comment/81992537#Comment_81992537

SIPs don't mature. You choose to make a withdrawal from them or not

I assumed it was the bond that was maturing, not the SIPP…?