ISA versus lump sum into Mortgage
Discussion
Ok, So ISA's ain't doing that well at the moment.
So I have been advised that I should pull my money out after the end of the tax year and reinvest in a better ISA. This seems fine although the money in the current ISA is a bit more than the £5100 I can put into a cash ISA.
So the question is, should I then get Stocks and Shares ISA with the rest of the money or should I put a lump sum into my mortgage.
The reason I asked is because I had a chat with a friend recently and they have managed to pay off their mortgage completely. But what they were saying is that they can only buy a house for 5 times their salary and then put a massive deposit in because they have it. So I can’t currently see why paying off the mortgage early actually help?
Yours thoughts would be appreciated.
Caroline
So I have been advised that I should pull my money out after the end of the tax year and reinvest in a better ISA. This seems fine although the money in the current ISA is a bit more than the £5100 I can put into a cash ISA.
So the question is, should I then get Stocks and Shares ISA with the rest of the money or should I put a lump sum into my mortgage.
The reason I asked is because I had a chat with a friend recently and they have managed to pay off their mortgage completely. But what they were saying is that they can only buy a house for 5 times their salary and then put a massive deposit in because they have it. So I can’t currently see why paying off the mortgage early actually help?
Yours thoughts would be appreciated.
Caroline
Some ISA's do allow transfer in from a previous ISA so you can indeed transfer an amount and this does not count towards your allowable contribution for the coming tax year. Not all ISA's offer transfer in though.
Additionally make sure you don't pull your money out, as you state, to then put it in to a new ISA. That isn't possible. The money needs to be transferred as part of opening an ISA with your new provider to ensure it stays within the tax-free product.
Additionally make sure you don't pull your money out, as you state, to then put it in to a new ISA. That isn't possible. The money needs to be transferred as part of opening an ISA with your new provider to ensure it stays within the tax-free product.
NewNameNeeded said:
Some ISA's do allow transfer in from a previous ISA so you can indeed transfer an amount and this does not count towards your allowable contribution for the coming tax year. Not all ISA's offer transfer in though.
By the looks of it at the moment, transferring from one ISA to the next with all the money gives a really low rate of return less than 1%, but for new ISA I have seen a few which are 3.5%. Which is why I am thinking of pulling all my money out and dividing it up between cash/shares/mortgage. I just want people opinions on the right mix and if paying of the mortgage early is a better way to go?Caroline
Isn't it as simple as considering what rate you would get on an ISA and balance that against what rate you're currently paying on your mortgage? If the latter is higher, it's better to pay down the mortgage (all thing being equal).
In practice, it may not be that simple. If you're on a fixed rate mortgage, check whether there is any penalty for making an overpayment.
Do you need access to the lump sum in the future? If yes, check whether you can draw it down again against your mortgage, if required.
In practice, it may not be that simple. If you're on a fixed rate mortgage, check whether there is any penalty for making an overpayment.
Do you need access to the lump sum in the future? If yes, check whether you can draw it down again against your mortgage, if required.
Lurking Lawyer said:
In practice, it may not be that simple. If you're on a fixed rate mortgage, check whether there is any penalty for making an overpayment. - There is no Penalty
Do you need access to the lump sum in the future? If yes, check whether you can draw it down again against your mortgage, if required. - I can take a lump sum out of the mortgage at 3% above the mortgage rate of 0.034% above base rate at anytime.
Do you need access to the lump sum in the future? If yes, check whether you can draw it down again against your mortgage, if required. - I can take a lump sum out of the mortgage at 3% above the mortgage rate of 0.034% above base rate at anytime.
Lurking Lawyer said:
Isn't it as simple as considering what rate you would get on an ISA and balance that against what rate you're currently paying on your mortgage? If the latter is higher, it's better to pay down the mortgage (all thing being equal).
What are the advantages of paying off the mortgage early?caz_manc said:
What are the advantages of paying off the mortgage early?
You save yourself a hell of a lot of interest over the term. Because you're accruing interest daily, you end up paying interest on accrued interest - compound interest is nice when it's on your savings but not so good when you're paying it on what you've borrowed under a mortgage.
So, if you pay a lump sum off the principal sum owing, you reduce (by potentially quite a lot) the amount of interest you will pay over the life of the mortgage. You can then reduce the term but maintain the same monthly payment.
(Or alternatively keep the same term but reduce your monthly payment - but that won't save you as much in the long run)
Gassing Station | Finance | Top of Page | What's New | My Stuff