Daft ISA question

[Pistom]

As a 40% tax payer! the tax benefit of an ISA is attractive but is there any point keeping money in an ISA that is paying about 1.5% whilst I still owe on a mortgage or loan which is at 4% which has no redemption charge?

[nyt]

In theory interest rates or investment returns may/will rise and the tax free income may be useful in the future.

But the annual allowance is now over 15k which is substantial so I'd pay off the mortgage every time. Doubly so if the mortgage is a floating rate and likely to start rising before long.

[NNH]

It's also a useful place to keep a slush fund of 3-6 months' income

[Pistom]

NNH said:

It's also a useful place to keep a slush fund of 3-6 months' income

I can do that as an overpayment on the mortgage.

[jfbrin]

I calculate that the break-even rate required from your ISA to beat your mortgage rate of 4% is 6.67% based on your 40% tax rate. The real figure is less if you take your allowances into account so that your average tax rate may be some 33%. Either way, it is rarely wrong to make paying down your mortgage ASAP as one of your top priorities especially with interest rates so low as more of the capital debt is being repaid.

Equally, you can make the case to borrow more with rates so low etc.etc. but if reducing debt is your objective, now is the time to attack it.

[jfbrin]

I calculate that the break-even rate required from your ISA to beat your mortgage rate of 4% is 6.67% based on your 40% tax rate. The real figure is less if you take your allowances into account so that your average tax rate may be some 33%. Either way, it is rarely wrong to make paying down your mortgage ASAP as one of your top priorities especially with interest rates so low as more of the capital debt is being repaid.

Equally, you can make the case to borrow more with rates so low etc.etc. but if reducing debt is your objective, now is the time to attack it.

[Pistom]

Many thanks for the sanity check.