ISA or mortgage?

tim_n

I have a 97000 C&G mortgage of which I'm repaying 5.59% over 25 years with a repayment of £600.89 every month. I can repay upto 10% of my mortgage value every year - so technically I can make overpayments upto £9,700 a year (though I could be wrong about that, it was the way my mortgage advisor explained it to me). Calculations are daily.
I took this out as a fixed rate on 1st May 2007 for two years.
I have £3000 savings which I could either stick into a new ISA for this year, or dump into the mortgage.
What would be more beneficial - I have no idea how much of my repayments are actually taking off my mortgage at present, but I assume it will save me money in the long term.

kingkano

You can get ISA rates as high as 6.5% if you scour the markets. So most definitely ISA for your 3000 initially. You don't say if you have a rainy day fund? If you do great if not then concentrate on building up 4-6mths salary in easy access savings first would be my advice.

Then clear any high interest loans. Then ISA allowance each year. THEN overpay the mortgage

tim_n

Unfortunately I used up my nest egg getting the house bought, now I'm getting married the gf is the one passing the cash to me - perhaps I'll invest it into an ISA for me, I've been dying to get some savings again.

Polly_Pod

Glad you asked this Tim - we are in similar situation

We aren't sure weather to overpay monthly by about £100 or put it into a high interest account then pay it off the mortgage annually.

Any suggestions?

dimbo61

hi tim_n, get saving now if you are getting married . I dont think your girlfriend would be happy if you paid it off the mortgage.
build up your savings in an ISA £3k this tax year and £3,600 after april.
try to keep the bills under control you dont want to start married life up to your eyes in debt. GOOD LUCK

davep

Hi, regarding the 10% overpayment per year most fixed rate deals contain this loophole, I discovered this via MSE about 5 years ago and it helped me take a big chunk out of my last fixed rate mortgage without incurring the penalty clause. Word of caution though its 10% of outstanding balance per year, so its £9700 at the moment but decreases with each overpayment you make. Also make sure you do not pay 1 penny over as this invokes the penalty clause.
This 10% payment is also useful if you want to exit a fixed rate with a penalty clause, pay 10% of the total amount before paying the whole mortgage off/remortgaging as this then means you only pay the penalty % fee on 90% of what you owed instead of 100% :beer:

kingkano

davep wrote: »

This 10% payment is also useful if you want to exit a fixed rate with a penalty clause, pay 10% of the total amount before paying the whole mortgage off/remortgaging as this then means you only pay the penalty % fee on 90% of what you owed instead of 100% :beer:

I believe this isnt the case. Most penalties are based on the original advance not on the outstanding balance at the time of redemption (for the very reason you've highlighted). Nice try though!

To the OP - now you have given more indepth info - most definitely ISA. ISa to your allowance first, then the future wife's if possible. Remember ISA allowances are a one-off, if you don't use it in a year its gone forever. Anything tax free is 100% worth having!

tim_n

Fortunately her parents are quite the traditionalists and have offered to pay lock stock and barrel for the wedding. Hearing that, my parents then offered to pay half leaving me to feel quite guilty as I was thinking of a small occasion with our friends without much expense. We're currently looking at 10k, but I'm staying out of it only occasionally stepping in to cut costs. It's turning into a silver service wedding, when I'd been happy with a registry wedding! ho-hum.