repaying off mortgage

dr_vicky

Hi,
Could anyone tell me if it is better off repaying a mortgage than put money in an ISA account??
Thanks
Vivek

lisyloo

A simplistic answer is that it depends on the rate.

If mortgage rate is higher then pay off mortgage.
If ISA rate is higher then put it in an ISA.

However it's a bit more complicated than that.
Do you have any debts at a higher rate that you could pay off?
Do you have enough cash available for an emergency?
Are you contributing enough to a pension? Is there any free cash available from your employer to put towards a pension?

crossleydd42

I agree wholeheartedly with'lisyloo'.
The trouble with repaying a mortgage is that the money is lost from your pocket forever in a way which might make little difference to your monthly outgoings. You might have a better use for it as she suggests.

dr_vicky

Thanks for the replies guys.
My ISA interest is less than my mortgage.
But wont we save more by paying off the mortgage because the interest rate goes down. what about an offset account?
Have you guys seen the website https://www.oneaccount.com?
It does show some pretty simple calculations.
Your opinion please

Thanks
Vivek

Woby_Tide

big thread on the Offset account mortgages at the top of the Mortgages board


http://forums.moneysavingexpert.com/showthread.html?t=471

innovate

dr_vicky wrote:

Have you guys seen the website https://www.oneaccount.com?

I switched my endowment mortgage to the OneAccount in 2000, with £60K still outstanding, and no savings to speak of. What attracted me was the immense flexibility for paying back or taking out more money (with the house as security, valued at £390K, I can theoretically borrow £350K, without having to ask a single question). The other thing I liked was 24x7 online banking, and all my money matters in just one place. This suited me great since I was in a "corporate rate race job" and had little time to trawl through bank statements...

When I wanted another £80K last September, I could get it without having to do one piece of paperwork. The original mortgage was to run through to 2014, but I have been fortunate enough to be able to pay it all off a couple of months ago - no fees, no questions asked, I just paid it off.

Service throughout the years has been very good, though the OneAccount online facilities are a little ageing now (e.g. there's no interface to MS Money).

I still have the OneAccount open and my regular income gets at the moment still paid into it but since it pays a paltry .75% on credits, I now only leave a tiny amount in this account and move the majority each month to another current account / into a savings account, both just opened over the last month.

I'll also make less use of the OneAccount VISA card in future - I only just (!!!) realised it charges once a week to your current account, i.e. you only get max 1 week's credit, which is definitely not the best deal you can get!

All in all, I don't know whether I could have got a better deal over the last 5 years elsewhere, but I feel pretty content with the OneAccount - the minimum hassle I had over this time was worth a great deal to me. Your approach to managing your finances may be different, so the OneAccount may or may not be a good option for you.

Ching_Ching

I'm always happy to hear about good experiences with the One Account.

I really love the idea of a One Account, and have done for a few years now, but I cannot shrug off their interest rates, they are just too high for me to consider them seriously.

Which is a great shame.

The rates on their website are:

6.70% for 95.01%+ LTV and
5.85% for up to 50% LTV.

( coming down by 0.25% in 60 minutes though :drool: !!! )

There are too many better rates out there with decent flexibility.

I guess it is probably best suited to those who have very large variations in their income and/or savings, outside of the limits of:

£499.99pm ( NOT, I repeat, NOT £500 or we'll have you on an overpayment charge ) or

£500pm ( nice n easy) or

10%pa (10% of what exactly......and when exactly???.........today's balance?? .... Dec 31st balance? ..... my Birthday balance?..........) or

Anything you like sir, whenever you like sir, really, at all, we don't care sir!!



Baaaaahhhhh !!!
It's a minefield out there!


Ching_Ching

innovate

Ching_Ching wrote:

I guess it is probably best suited to those who have very large variations in their income and/or savings, outside of the limits of:

£499.99pm ( NOT, I repeat, NOT £500 or we'll have you on an overpayment charge ) or

£500pm ( nice n easy) or

10%pa (10% of what exactly......and when exactly???.........today's balance?? .... Dec 31st balance? ..... my Birthday balance?..........)

Ching_Ching

Not sure whether you mean that the OneAccount has those limitations - - if you were meant to say that, then I beg to disagree. It's precisely the total absence of such complex limits that attracted me to the OneAccount. And their interest charges are very easy to understand

But I agree with you, the OneAccount is more suitable to people with large income [or spending] variations, and there are better mortgage interest rates about. However, being able to get, in effect, a personal loan, at the mortgage interest rate, and without having to fill in one piece of paper, can be a useful thing. T'was for me - other people's mileage may vary!

sleepless_saver

dr_vicky wrote:

Thanks for the replies guys.
My ISA interest is less than my mortgage.
But wont we save more by paying off the mortgage because the interest rate goes down.

It's not the interest rate that goes down if you pay off your mortgage, it's the amount of interest - the rate will stay the same.

If you make 5% on £10000 in a cash ISA, that will make you £500 a year. If your interest rate on your mortgage is 6%, then you would save £600 a year in interest payments by paying off £10000. So you would save more by paying off the £10k than you could if you kept it in your ISA.

But Lisyloo is quite right, there are other things to think about too. (e.g. if I were paying 6% I'd switch to a better rate )