Mortgage Repayment vehicle - ISA?

Cash-Is-King

Hi there

I am about to sign up for FD's 5.29% fixed rate Offset mortgage (Interest only mortgage) and want to make up the extra to repay it over its term (£280 p/m) and wanted to get the opinion of saving savvy MSE forumites.

What product would be best to save into? I currently have an NSandI Direct ISA but couldn't help but notice this one http://www.icesave.co.uk/easy-access-isa.html

Also, the first mortgage I got 5 years ago was Interest Only and I was offered (and took) this http://www.thesynergyplan.co.uk/pages/PlanSummary.html

I would love to hear your initial thoughts on how I best get my money to work for me.

Thanks

$$Cash££

Aegis

Cash-Is-King wrote: »

Hi there

I am about to sign up for FD's 5.29% fixed rate Offset mortgage (Interest only mortgage) and want to make up the extra to repay it over its term (£280 p/m) and wanted to get the opinion of saving savvy MSE forumites.

What product would be best to save into? I currently have an NSandI Direct ISA

Now 5.3%, so definitely due to be ditched!

but couldn't help but notice this one http://www.icesave.co.uk/easy-access-isa.html

You can beat it for new money at the moment with Barclays, and you can beat Icesave for new money with either Alliance and Leicester or Abbey, which both offer 6.25% (though their rate guarantee doesn't exist...)

If you have a long way to go before paying off your mortgage, you might find it worth looking at stocks and shares on top of cash ISAs, as they generally outperform cash in the long run by a considerable margin.

Cash-Is-King

Hi Aegis - I have 20 years to go (but I plan to bring it down to 15-16 by overpayments) so stocks and shares then? If so, is there a managed solution available for this as opposed to me selecting (and probably badly!!) said stocks and shares)

RE the ISA's - I did notice alot of the banks where guaranteeing for 1 year etc but Icesave said this "We guarantee the AER will beat Base Rate* by at least 0.30% until 31 January 2011 and at least match Base Rate until 31 January 2013" which sounded OK.

So firstly I have established - don't pay the £280 to First Direct as there are better returns elsewhere.

Now the tricky part 2 - where do I put £280 pm? Looking like a stocks/shares soloution - any companies you know would be worth talking to?

$$Cash££

Aegis

Cash-Is-King wrote: »

Hi Aegis - I have 20 years to go (but I plan to bring it down to 15-16 by overpayments) so stocks and shares then? If so, is there a managed solution available for this as opposed to me selecting (and probably badly!!) said stocks and shares)

For the amount in question, it might be worth talking to an IFA. While initially it will be worth very little, the ongoing build up might well turn into some rather good business for one. There are a couple who frequent this forum who might be able to give you an idea about whether they'd deal with you for the small starting amount but with monthly contributions for 15-20 years!

However, to start with there are some very good tips here for how to self-select a stocks and shares ISA. If you really needed to, a bit of research would help you decide on a strategy for the next few years, at which point you could transfer across to an IFA when the amount got really significant.

RE the ISA's - I did notice alot of the banks where guaranteeing for 1 year etc but Icesave said this "We guarantee the AER will beat Base Rate* by at least 0.30% until 31 January 2011 and at least match Base Rate until 31 January 2013" which sounded OK.

Personally I think these rate guarantees are a waste of time. NS&I has much the same rate guarantee as Icesave, and the rate there is awful. IceSave is far above their guaranteed minimum AER at the moment, and is still not the market leader as far as rates go. If you want a rate guarantee, the best bet would be to sign up for a fixed-term ISA. That way you get the rate on the full amount for the full term, and don't need to worry about rate changes!

So firstly I have established - don't pay the £280 to First Direct as there are better returns elsewhere.

That entirely depends on you. If you pay the £280 to them, you have the guaranteed knowledge that you've saved 5.29% net. You'd need to get at least that annualised to make going elsewhere worthwhile. My personal inclination is to go elsewhere to beat the mortgage interest, but I'm very much a risk-taker!

Now the tricky part 2 - where do I put £280 pm? Looking like a stocks/shares soloution - any companies you know would be worth talking to?

I'd always recommend Hargreaves Lansdown for long-term investing, as they offer very good deals on unit trusts and OEICs (i.e. collective investments), but you still need to make your own choices when it comes to the investment side. They are expensive for advice, so if you want to chat to someone about what you should do, find a local IFA by visiting https://www.unbiased.co.uk

Hope that helps!

Cash-Is-King

Aegis - thanks for the VERY informative reply, this is the sort of info I was hoping for.

As for the 15-20 year term, I have been thinking that what will most likely happen is I will have to move mortgage in 5 years time (to what ever the best deal is at that time - it may be a straight up repayment mortgage for all I know and that being the case I will most likely not be willing to invest £280pm in something else), therefore I would want the savings product to run for the 5 year term and then transfer it into the First Direct mortgage at the end of the term - does this seem like a reasonable approach?

As for the IFA - this is on my list now, but I will be touching base with Hargreaves Lansdown.

PS, thanks for helping clarify the ISA issue too.

If anybody else knows of a 5 year savings plan that has the potential of outstripping an ISA, please let me know as I am up for a bit of risk taking if the product feels right.