Mortgage Overpayment vs S&S ISA
Discussion
Looking for advice from the finance guru's on here please
I have a S&S ISA in which I'm depositing £400-450 a month.
I also just setup a mortgage overpayment of an additional £150 a month which is the remainder of what I can save each month. It should knock 6.5 years off the mortgage if I keep it going.
30 ish years till retirement being realistic. £171k left on mortgage. I have a company pension which is 4% employer, and I contribute 4%.
Have I done the 'correct' thing. Should I drop the S&S ISA monthly contributions down and up the mortgage overpayment? Or visa versa. I feel I'm on the right track, but unsure of the correct balance in these things.
I have a S&S ISA in which I'm depositing £400-450 a month.
I also just setup a mortgage overpayment of an additional £150 a month which is the remainder of what I can save each month. It should knock 6.5 years off the mortgage if I keep it going.
30 ish years till retirement being realistic. £171k left on mortgage. I have a company pension which is 4% employer, and I contribute 4%.
Have I done the 'correct' thing. Should I drop the S&S ISA monthly contributions down and up the mortgage overpayment? Or visa versa. I feel I'm on the right track, but unsure of the correct balance in these things.
A common view is that mortgages are cheap money at the the moment, assuming you're on a fairly standard rate. It shouldn't be difficult to get a return of 6% or more on your ISA, albeit with more risk attached. 30 years of growth should result in a very nice ISA pot & you can access it at any time of course. On the other hand, being mortgage free is very freeing.
I'd say you're doing pretty well with your arrangement. I wouldn't switch a lot more to the mortgage, maybe £50 or so & it would be useful to have a mortgage that allowed lump sum payments so that if rates did rocket you could pull it out of the ISA & pay off some of the mortgage. One other thing to consider would be opening a SIPP to switch some of the ISA money into & take advantage of the tax relief currently available.
I'd say you're doing pretty well with your arrangement. I wouldn't switch a lot more to the mortgage, maybe £50 or so & it would be useful to have a mortgage that allowed lump sum payments so that if rates did rocket you could pull it out of the ISA & pay off some of the mortgage. One other thing to consider would be opening a SIPP to switch some of the ISA money into & take advantage of the tax relief currently available.
I hope I'm not wrong on this, but:
Add up the average returns on the ISA + the fees. If the return is more than the interest % on your mortgage then keep going with the ISA.
I'm paying the standard amount monthly on my mortgage at 1.45% fixed for 5 years. I'm getting 6.6% average on my S&S ISa with 0.7% fees. So makes a lot more sense for me to be sticking anything extra up to the ISA allowance in to that rather than the mortgage.
Add up the average returns on the ISA + the fees. If the return is more than the interest % on your mortgage then keep going with the ISA.
I'm paying the standard amount monthly on my mortgage at 1.45% fixed for 5 years. I'm getting 6.6% average on my S&S ISa with 0.7% fees. So makes a lot more sense for me to be sticking anything extra up to the ISA allowance in to that rather than the mortgage.
Even VLS20 has out performed most mortgages whilst being pretty low risk.
VLS100 has returned closer to 14% over the last 5 years, annualised.
VLS100 is 10 years old later this year so we will get a 10 year return rate soon.
I would say, for now, S&S over overpaying mortgage.
I would monitor though, say once a year at this stage just to ensure you are doing the right thing.
VLS100 has returned closer to 14% over the last 5 years, annualised.
VLS100 is 10 years old later this year so we will get a 10 year return rate soon.
I would say, for now, S&S over overpaying mortgage.
I would monitor though, say once a year at this stage just to ensure you are doing the right thing.
What's not been discussed yet is that 8% pension contribution isn't enough and the tax relief is better on pension than it is on ISA. What's the right amount? Well 20% is a nice, round number ....... sound of jaw dropping. But if you research the subject you'll find it's in that general direction.
My suggestion is to consider putting your "investment" money 50% into pension and 50% into ISA. Why?
My suggestion is to consider putting your "investment" money 50% into pension and 50% into ISA. Why?
- Pension - immediate and ongoing tax relief is massively beneficial - although you can't access the fund until around retirement age. (Pension is even more efficient if you're a 40% taxpayer now and especially if you're likely to be a 20% taxpayer in retirement.)
- ISA - good, ongoing tax relief - you can access the fund whenever you want to.
RichTT said:
I hope I'm not wrong on this, but:
Add up the average returns on the ISA + the fees. If the return is more than the interest % on your mortgage then keep going with the ISA.
Good in principle but I would want to see a bit of a spread in there to account for risk, say 3-5% differential?Add up the average returns on the ISA + the fees. If the return is more than the interest % on your mortgage then keep going with the ISA.
If you over pay your mortgage then the next months payment will be lower and if you keep the payments the same then the overpayment accelerates. This is risk free, tax free and cost free whereas the isa has costs and risks to capital so there is no fair comparison but I personally do both, splitting the payment means you do not miss the benefits of both but lessen the risk.
If you reduce the balance of the mortgage you may drop to a better loan to value at the next remortgage point.
Isa has faster access which can be good or bad.
If you reduce the balance of the mortgage you may drop to a better loan to value at the next remortgage point.
Isa has faster access which can be good or bad.
I did the same with my mortgage and it worked out really well even though it overlapped severe market drops during the credit crunch. The mortgage was eventually paid off by overpayments, not from the ISA.
However, you are effectively borrowing to invest with all the potential trouble that might bring if you ever become a forced seller (of house and shares) for any reason. Only you can decide whether your happy with that risk.
However, you are effectively borrowing to invest with all the potential trouble that might bring if you ever become a forced seller (of house and shares) for any reason. Only you can decide whether your happy with that risk.
I'm looking at setting up a "Lower Risk" ISA if there is such a thing to put my mortgage overpayment money into whilst the rates are lower. I plan to build it up until it's enough to pay off the mortgage. Happy to take the risk at the moment and I figure that if i'm close to a LTV level come re-mortgage I can move some over.
fiatpower said:
I'm looking at setting up a "Lower Risk" ISA if there is such a thing to put my mortgage overpayment money into whilst the rates are lower. I plan to build it up until it's enough to pay off the mortgage. Happy to take the risk at the moment and I figure that if i'm close to a LTV level come re-mortgage I can move some over.
Not much point in a low risk stocks and shares isa really, you need to have some volatility and be in there 5+ but more like 10yrs + anything like 2-3 yrs just pay it straight off the mortgage and remove risk from the equation.Caddyshack said:
Not much point in a low risk stocks and shares isa really, you need to have some volatility and be in there 5+ but more like 10yrs + anything like 2-3 yrs just pay it straight off the mortgage and remove risk from the equation.
Hmm, just run my figures and it would appear that you're right! I would be paid off after 14 years but with a ISA at 8% i'd still have £40k left to pay. Guess the only downside is it was almost a very large emergency fund to pay the mortgage if the worst happened and we needed the cash (already have a large emergency fund). Seems I have a big decision to make!I have a mortgage of £180k with 25 years left. Savings currently at £5k with approx £5k a year to add to it. I'm also paying another £3-5k into a S&S ISA as well so i'm already spreading my savings around.
Edited by fiatpower on Wednesday 3rd February 21:42
When I took out my mortgage the rate was 8.6%. As the interest decreased I maintained the same repaments meaning I was over paying my mortgage, its gone now.
I was also paying into a cash ISA that in the end was earning a pitance. Eventualy moved it to a S&S ISA and it is now doing very well. Personaly I would put your excess cash 50% into mortgage overpayment and 50% into S&S ISA.
But my suggestion is to speak to a financial advisor. My ISA is spit into six packages and is performing better than I could have done on my own.
I was also paying into a cash ISA that in the end was earning a pitance. Eventualy moved it to a S&S ISA and it is now doing very well. Personaly I would put your excess cash 50% into mortgage overpayment and 50% into S&S ISA.
But my suggestion is to speak to a financial advisor. My ISA is spit into six packages and is performing better than I could have done on my own.
clarky92 said:
Looking for advice from the finance guru's on here please
I have a S&S ISA in which I'm depositing £400-450 a month.
I also just setup a mortgage overpayment of an additional £150 a month which is the remainder of what I can save each month. It should knock 6.5 years off the mortgage if I keep it going.
30 ish years till retirement being realistic. £171k left on mortgage. I have a company pension which is 4% employer, and I contribute 4%.
Have I done the 'correct' thing. Should I drop the S&S ISA monthly contributions down and up the mortgage overpayment? Or visa versa. I feel I'm on the right track, but unsure of the correct balance in these things
I'd say that's a good balance, it's nice to pay your mortgage down even if it's not as efficient. But the values you are putting in are reasonable.I have a S&S ISA in which I'm depositing £400-450 a month.
I also just setup a mortgage overpayment of an additional £150 a month which is the remainder of what I can save each month. It should knock 6.5 years off the mortgage if I keep it going.
30 ish years till retirement being realistic. £171k left on mortgage. I have a company pension which is 4% employer, and I contribute 4%.
Have I done the 'correct' thing. Should I drop the S&S ISA monthly contributions down and up the mortgage overpayment? Or visa versa. I feel I'm on the right track, but unsure of the correct balance in these things
I went the other way and tipped it all into my mortgage a bit quickly, when really I should have saved more in ISA'S, so I think I wasted a bit of opportunity. With the benefit of hindsight, I wouldn't have not over paid, just over paid a bit less.
vulture1 said:
Regardless of the cold hard facts of numbers im sure returns on your stocks and shares ISA will be higher it is a nice feeling to know you are knocking years off your mortgage.
it is indeed-I have paid mortgage off but as op is doing was investing S+S isa now paying for daughter at uni and new alfa so very glad paid mortgage off as priority with isa ticking along nicelyApologies for the thread hijack, but it’s sort of relevant....
If you had £20k to invest / dispose of before the end of the tax year, what would be the best use of it?
£20k chipped off the mortgage which is at 1.5%?
£20k invested in a stocks and shares ISA? (Which would be starting from scratch.)
£20k put into the pension, with 40% relief?
Don’t need access to it but already putting 19% into the pension. I can’t work out which would be the best option long-term.
If you had £20k to invest / dispose of before the end of the tax year, what would be the best use of it?
£20k chipped off the mortgage which is at 1.5%?
£20k invested in a stocks and shares ISA? (Which would be starting from scratch.)
£20k put into the pension, with 40% relief?
Don’t need access to it but already putting 19% into the pension. I can’t work out which would be the best option long-term.
Crumpet said:
Apologies for the thread hijack, but it’s sort of relevant....
If you had £20k to invest / dispose of before the end of the tax year, what would be the best use of it?
£20k chipped off the mortgage which is at 1.5%?
£20k invested in a stocks and shares ISA? (Which would be starting from scratch.)
£20k put into the pension, with 40% relief?
Don’t need access to it but already putting 19% into the pension. I can’t work out which would be the best option long-term.
50% S&S and £10k on any home improvements/mortgage payment personally but then it depends on your situation on your mortgage balance, age and goals.If you had £20k to invest / dispose of before the end of the tax year, what would be the best use of it?
£20k chipped off the mortgage which is at 1.5%?
£20k invested in a stocks and shares ISA? (Which would be starting from scratch.)
£20k put into the pension, with 40% relief?
Don’t need access to it but already putting 19% into the pension. I can’t work out which would be the best option long-term.
For me, I know pension is the most tax efficient but I'm 29 and I might be dead before I'm 55, let alone 65.
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