I have £3000 to save should I....

tlck9

I have approx £3000 to save, should I pay this into an isa or pay it into my mortgage

I pay 7.2% on my mortgage and i'm sure its daily interest

Would I be better paying this into my mortgage or into some sort of ISA?

any ideas to gain the best from this money

I'm not anticipating wanting to access the money, however it might be nice to be able to in an emergency - but I dont want access easily or I will spend it.

I am a tax payer

Aegis

7.2% on your mortgage is extremely high. Have you lapsed on to your lender's SVR, and if so have you considered remortgaging to bring the price down? At the moment you could be looking at 5.7% or so for variable rates and less than base rate for fixed mortgages (though with predicted drops this might not be as competetive in a couple of months)

tlck9

Aegis wrote: »

7.2% on your mortgage is extremely high. Have you lapsed on to your lender's SVR, and if so have you considered remortgaging to bring the price down? At the moment you could be looking at 5.7% or so for variable rates and less than base rate for fixed mortgages (though with predicted drops this might not be as competetive in a couple of months)

Unfortunetly, I'm tied into the mortgage for 5 years (fixed rate) - it was the best deal for my circumstances - needing a high mortgage to salary ratio with no deposit - not ideals as I have an a+ credit however I took it to relocate

my other half is self empoyed with only 1 years books and I wanted to get rid of some debts and start in the new place with zero debts - albeit a higher mortgage

so my plan is to pay into a savings account or the mortgage and reduce the mortgage as quickly as possible - this way I retain my debt free status but control my finances and hopefully get a better deal in a few years when A) we have a deposit and can move, my partner will have enough books C) we have some money behind us

dizzie

Wow - that is quite a high rate on your mortgage. I guess it is was me, I would be thinking:

(i) 7.2% is a higher interest rate than is available on cash isas (as far as I am aware anyway), so for a better return, paying it into your mortgage looks a better bet, BUT

(ii) Is your mortgage definitely calculated on a daily rate? Would there be any penalties if you make this lump sum payment into your mortgage?

Also, once you have paid it into your mortgage, if this is a standard mortgage I think you might be unlikely to be able to get this money back out of it once paid in (Although they may allow you a mortgage payment holiday if you have previously made an overpayment and then run into cashflow problems).

(iii) If your mortgage has only got a short time left, e.g. a couple of years, you may actually be better off paying into a cash isa because of the effect of the tax-free compound interest effect.

Calculation examples:

Single sum of £3,000 paying off interest at 7.2% per year saves you interest of: £216 at end of year one, a further £232 at end of year 2, a further £248 at end of year 3 ... and so on (i.e total interest saved in 3 years will be approx £696, over 5 years it is approx £1247 and over 10 years £3013 )*

Single sum of £3,000 earning interest at 6.0% per year, earns you interest of: £180 at end of year one, a further £191 at end of year 2, a further £202 at end of year 3...and so on (total interest earned in 3 years will be approx £573...but if left there for 5 years you would earn a total of £1015 in interest and over 10 years, this would be £2373 in interest)

* In all of these calculations, I have assumed that interest rates stay constant and have rounded to the nearest £1.

Maybe you need to consider what sort of some you might like to be able to get access to reasonably quickly and split the sum between the mortgage and an ISA.

PS If you are not tied into that mortgage, I would be looking around to see if you can get a better rate. A few years back, we were on Skipton BS standard variable rate, then remortgaged and saved a good 1% on the new interest rate. I initially put it off because it seemed like a bit of a hassle filling the paperwork in etc, but when I worked out what sums of money it would save us, I was gobsmacked...and made completing the paperwork a priority!

Please note, I'm no financial expert - just an ordinary person who is learning as I go along (especially with the help of this brilliant website). Maybe one of the financial wizards who post on this forum might have some better ideas.

dizzie

PS Have just finished typing all of the above to see that further posts have now been submitted and you now say you are tied to this mortgage - sorry, I am quite a slow typer and wanted to double check my maths before I submitted my post.:o

tlck9

cirmustances prevailed unfortunetly, but I am happy with my decision, prefer a better rate but I relocated and to be honest 7.2 was better than 13% on credit cards etc

I took the mortgage when rates were going up, relocating didnt give me much choice - and by the time it all went through rates had come down, but no time to change so I was stuck with it....thems the blows

I just want to make the most of the money now, I will double check with my mortgage company on the daily interest.

ad44downey

today's advice is to put the lot on "If only I knew" which runs at Sedgefield 1.50 pm

If you'd followed yesterday's advice you'd literally be a millionaire :beer:

http://forums.moneysavingexpert.com/showthread.html?t=723527

tlck9

excellent! I do the match betting from the forum, so i'm hoping to keep adding to my little pot and pay off my mortgage early, that is the plan

Fluffy_Bunny_2

ad44downey wrote: »

today's advice is to put the lot on "If only I knew" which runs at Sedgefield 1.50 pm

If you'd followed yesterday's advice you'd literally be a millionaire :beer:

http://forums.moneysavingexpert.com/showthread.html?t=723527

Horse came in 3rd so you'd have lost all your money. A 12-1 horse won.

Aegis

Just goes to show that my signature is right yet again

ad44downey

Fluffy_Bunny wrote: »

Horse came in 3rd so you'd have lost all your money. A 12-1 horse won.

No, not quite. We won over a million yesterday and lost 3 grand today. And what's a measly 3 grand when you've got a million. :rotfl: