ISA versus lump sum into Mortgage

[caz_manc]

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

[caz_manc]

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

[caz_manc]

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.

[caz_manc]

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]

Lurking Lawyer said:

You save yourself a hell of a lot of interest over the term.

But if the current interest is 0.64% on the mortgage and you have a quarter of your mortgage value in an ISA at 2.5%, is is worth transferring?

[caz_manc]

TomBoo said:

No.

Thank you, this is perfect, I will close my ISA at the end of the tax year (gettin the interest first of course) and put £5100 into a new one with 3.5% and the rest as a lump sum into my mortgage.