Isa to pay off part of mortgage

pav_2

In MAY 2000 I needed to raise another £13,000 to top up my mortgage to buy my partner out. My financial adviser sugested a flexable mini cash isa savings plan with Legal and General. I am paying about £48.00 per month for 17 years which should make £13,000 he said?? As I have all ready got a £30,000 endowment with Friends Prov. which they tell me will only make £18,000 if Im lucky im a bit concerned, I now have £13,000 in a saving account, please could any one advise me on my best option, should I put more money in the isa to cover my shortfall, or pay some of the motgage off? I would be gratful for any advise.

dunstonh

Very strange recommendation. I would never use a cash ISA to run alongside an interest only mortgage.

If you dont have the risk attitude to do an equity ISA, then you should really be looking at a capital repayment mortgage.

What is the target growth rate set on the cash ISA to ensure the capital repayment of the mortgage? You should have been told this in your meetings. This is vitally important when arranging an interest only mortgage. I estimate that £43.18 would meet 13,000 at 4% average return.

Was your advice through Barclays by any chance?

deemy2004

In MAY 2000 I needed to raise another £13,000 to top up my mortgage to buy my partner out.  My financial adviser sugested a flexable  mini cash isa savings plan with Legal and General.  I am paying about £48.00 per month for 17 years which should make £13,000 he said??  As I have all ready got a £30,000 endowment with Friends Prov. which they tell me will only make £18,000 if Im lucky im a bit concerned, I now have £13,000 in a saving account, please could any one advise me on my  best option, should I put more money in the isa to cover my shortfall, or pay some of the motgage off? I would be gratful for any advise.

Your IFA gave you 'daft' advice, well okay it will achieve the 'target' But if you have £13k in savings now ! What kind of advice is it to say £48 per month for 17 years ??? Which implies a cash contribution of £9,792.

If you want to play ultra-safe, your much better of putting the full CASH ISA limit of £3k in now, £3k in from April 05, then THAT £6k would grow to well over £13k in 17 years time.

You can lock in some good rates such as the halifax 5.8% 5 year fixed, and then see where rates stand in 5 years time for the next fix.

The L&G Cash ISA that he is recommending to you PAYs a commission and is in fact a unit trust ! Current yield is an abysmal 4% !! Your being hood winked !

pav_2

Hi thank for the advise,the isa I have is a Flexible Mortgage Plan, mini stocks and shares isa and I pay £48.44 per month to reach a target of £13,000 in 17 years. Start Aprill 2000 and to 4/10/04 it is now has a value of £2068.64
In the last 6 months total premiums paid £290.64
less charges £39.48
cost of life cover £29.53

I have plenty of life cover with the company I work for, is this a bad investment to raise £13,000 in 17yrs.
is there a way out of it with out loosing to much money?
or is it better to put more money in, to my limit of £3000 a year. I am grateful for any advice

isasmurf

I personally would never touch an ISA for any long term savings plan, and particularly to pay off a mortgage for the reason that they are only guaranteed to exist until April 2009.

But that doesn't really help you.

The only thing that I can say is that the ISA isn't linked to your mortgage (as that was (is?) not allowed). Although it might be called a Flexible mortgage plan, it should be a normal ISA with which you intend to pay off your motgage at some point in the future. So to this extent you could stop paying into it now, if you have other means to pay off your mortgage at the end of its term. What those other means can be, I cannot say.

If you have generous life cover through your employer I would check to see whether you could reduce your life cover payments through your ISA.

I think it's time you went to see a IFA again (but not the one you went to before!)

dunstonh

Your IFA gave you 'daft' advice,

pav didnt see IFA. Just financial advisor and as its a cash ISA being recommended, it doesnt even have to be an iFA or financial advisor but a bank clerk. Dont jump to any assumptions yet.

The L&G Cash ISA that he is recommending to you PAYs a commission and is in fact a unit trust

legal & general do offer cash isas and they are certainly not unit trusts.

Hi thank for the advise,the isa I have is a Flexible Mortgage Plan, mini stocks and shares isa and I pay £48.44 per month to reach a target of £13,000 in 17 years

Ahh, so its not a cash isa. You had us all going for a while.

Basically you have been sold an endowment but in the form of an isa and life policy.

Pav, was this Barclays advising you, a tied advisor or an IFA? doesnt make a lot of difference now but it will either make deemy gloat for a while or explain why L&G was used for the ISA.

pav_2

the first IFA  I saw stitched me up with a £30,00 endowment to pay off the mortgage, and the second IFA stitched me up with THIS  ISA .  Is there any reason to believe that the next one will be any better?  Would I still be better to pay up to £3000 a yr. in to use up the tax all. This will build up the fund quicker, and then could I draw it out before the target date? Ill have to find out if it is allowed.
No not Barclays he was working with an estate agent.

deemy2004

the first IFA  I saw stitched me up with a £30,00 endowment to pay off the mortgage, and the second IFA stitched me up with THIS  ISA .  Is there any reason to believe that the next one will be any better?  Would I still be better to pay up to £3000 a yr. in to use up the tax all. This will build up the fund quicker, and then could I draw it out before the target date? Ill have to find out if it is allowed.

Its in the IFA's interest to sell you something that will generate a commission for themselves. Thats not the same as sellign you something thats in your best interest. Which means that people need to educate themselves, because as you have experienced it is only then that people recognise what is best for them.

Being an accountant, I have many, lets call it 'DISCUSSIONS' with IFA's at my workplace, when they come calling with products to sell to the staff.

The Cash-ISA (Presently 3k per year) should be your first port of call for long-term savings.

dunstonh

The Cash-ISA (Presently 3k per year) should be your first port of call for long-term savings.

no it shouldnt. The first port of call for long term savings is the product most suitable to the person and the cash isa is not designed or intended to be a long term savings product.

Its in the IFA's interest to sell you something that will generate a commission for themselves. Thats not the same as sellign you something thats in your best interest.

The IFA has to make a living but that has to be done whilst giving best advice. If you didnt get best advice then complain.

I've come across bad accountants, bad solicitors, bad car mechanics, bad doctors, bad teachers.... Every industry has poor quality people in it along with good quality. If you dont like the service the complain. Then go elsewhere.

deemy2004

no it shouldnt.   The first port of call for long term savings is the product most suitable to the person and the cash isa is not designed or intended to be a long term savings product.

Hi

Well, the Building Societies Association considers Cash-ISA's to be a long-term investment vehicle, with some £30billion invested with them.

http://www.bsa.org.uk/Content/ContentPage.php?interest=100030

dunstonh

That is their view and they admit that it is against the commonly held view that you should invest in equities. No surprise really as building societies sell more cash isas than equity isas.

And again, they jump to the assumption that all equities are bad.

The poor performance of equity based products in recent years, and in Japan in particular, shows the dangers of such a narrow approach.

They pick on the highest risk areas to make a comparison. Ironically, Japan has been the best performing sector this year.

They fail to mention lower risk equities, such as corporate bonds, gilts, fixed interest funds and commercial property.

That page is more of a sales aid for cash ISAs. It doesnt reflect the purpose for what Cash ISAs were introduced for.

Cash ISAs are perfect for emergency fund and short term savings.