Extending mortgage to maximise ISA
Discussion
Ok, first of all I wouldn’t generally consider this but I’m due to retire in 4 years and will get a £180k lump sum, which I’ll have no immediate need for and after I use up my and my wife’s ISA, I’ll have £140k in a GIA.
In my head, I could potentially remortgage in May 2026 when my current deal is up and extend the mortgage by £40k and add it to two ISAs, then repay it when I retire. This way only £100k will be in a GIA with 80k in ISAs
Obviously markets might crash and I could lose a significant proportion of that £40k but any other options, or is all of this madness in an attempt to get £40k in a tax free wrapper?
In my head, I could potentially remortgage in May 2026 when my current deal is up and extend the mortgage by £40k and add it to two ISAs, then repay it when I retire. This way only £100k will be in a GIA with 80k in ISAs
Obviously markets might crash and I could lose a significant proportion of that £40k but any other options, or is all of this madness in an attempt to get £40k in a tax free wrapper?
foiled said:
Ok, first of all I wouldn t generally consider this but I m due to retire in 4 years and will get a £180k lump sum, which I ll have no immediate need for and after I use up my and my wife s ISA, I ll have £140k in a GIA.
In my head, I could potentially remortgage in May 2026 when my current deal is up and extend the mortgage by £40k and add it to two ISAs, then repay it when I retire. This way only £100k will be in a GIA with 80k in ISAs
Obviously markets might crash and I could lose a significant proportion of that £40k but any other options, or is all of this madness in an attempt to get £40k in a tax free wrapper?
No lender would lend to you for that reason.....In my head, I could potentially remortgage in May 2026 when my current deal is up and extend the mortgage by £40k and add it to two ISAs, then repay it when I retire. This way only £100k will be in a GIA with 80k in ISAs
Obviously markets might crash and I could lose a significant proportion of that £40k but any other options, or is all of this madness in an attempt to get £40k in a tax free wrapper?
Is the lump sum optional? That seems high for a mandatory lump sum.
You can use flexible ISAs to temporarily borrow in order to create the ISA entitlement you need. Described here:
https://monevator.com/should-you-borrow-to-fill-yo...
You don't need to invest the ISA in anything that will crash if you don't want to. A money market or short-term gilt fund should come close to matching mortgage rates with little risk.
You can use flexible ISAs to temporarily borrow in order to create the ISA entitlement you need. Described here:
https://monevator.com/should-you-borrow-to-fill-yo...
You don't need to invest the ISA in anything that will crash if you don't want to. A money market or short-term gilt fund should come close to matching mortgage rates with little risk.
Sarnie said:
No lender would lend to you for that reason.....
Why not?Can’t remember the exact questions but pretty sure hsbc did for me? I had the full balance of the mortgage invested with them?
Isn’t their main concern ability to repay? Do they really care what the money is for, once that unproven?
Sarnie said:
foiled said:
Ok, first of all I wouldn t generally consider this but I m due to retire in 4 years and will get a £180k lump sum, which I ll have no immediate need for and after I use up my and my wife s ISA, I ll have £140k in a GIA.
In my head, I could potentially remortgage in May 2026 when my current deal is up and extend the mortgage by £40k and add it to two ISAs, then repay it when I retire. This way only £100k will be in a GIA with 80k in ISAs
Obviously markets might crash and I could lose a significant proportion of that £40k but any other options, or is all of this madness in an attempt to get £40k in a tax free wrapper?
No lender would lend to you for that reason.....In my head, I could potentially remortgage in May 2026 when my current deal is up and extend the mortgage by £40k and add it to two ISAs, then repay it when I retire. This way only £100k will be in a GIA with 80k in ISAs
Obviously markets might crash and I could lose a significant proportion of that £40k but any other options, or is all of this madness in an attempt to get £40k in a tax free wrapper?
What the markets do in the meantime is irrelevant surely as it is the £180K lump sum that is guaranteeing the extra you have borrowed.
In the meantime you will be paying interest on the mortgage out of taxed income, but gaining tax free on the amount you put into the ISA so if your mortgage rate is say 4% you only need to gain 4% in your ISA to match that. You could use a short dated GILT to do that if you wanted to reduce the risk further for example.
lizardbrain said:
Sarnie said:
No lender would lend to you for that reason.....
Why not?Can t remember the exact questions but pretty sure hsbc did for me? I had the full balance of the mortgage invested with them?
Isn t their main concern ability to repay? Do they really care what the money is for, once that unproven?
From HSBC's lending criteria;
"We offer additional borrowing for a variety of reasons such as home improvements, debt consolidation and other lifestyle reasons. We cannot lend where the funds are to be used for investments or speculative purposes."
LeoSayer said:
Is the lump sum optional? That seems high for a mandatory lump sum.
You can use flexible ISAs to temporarily borrow in order to create the ISA entitlement you need. Described here:
https://monevator.com/should-you-borrow-to-fill-yo...
You don't need to invest the ISA in anything that will crash if you don't want to. A money market or short-term gilt fund should come close to matching mortgage rates with little risk.
It’s a mandatory lump sum. Thanks for the monevator link, hadn’t considered flexible ISA and an offset mortgage, food for thoughtYou can use flexible ISAs to temporarily borrow in order to create the ISA entitlement you need. Described here:
https://monevator.com/should-you-borrow-to-fill-yo...
You don't need to invest the ISA in anything that will crash if you don't want to. A money market or short-term gilt fund should come close to matching mortgage rates with little risk.
Doppel99 said:
If you are guaranteed £180k in 4 years time then it makes total sense to borrow against that in order to avoid losing £80K of ISA allowance.
What the markets do in the meantime is irrelevant surely as it is the £180K lump sum that is guaranteeing the extra you have borrowed.
In the meantime you will be paying interest on the mortgage out of taxed income, but gaining tax free on the amount you put into the ISA so if your mortgage rate is say 4% you only need to gain 4% in your ISA to match that. You could use a short dated GILT to do that if you wanted to reduce the risk further for example.
From a mortgage lending point of view, you can't lend against that £180k, it's not how mortgage lending works, even if the customer thinks it's a good idea.What the markets do in the meantime is irrelevant surely as it is the £180K lump sum that is guaranteeing the extra you have borrowed.
In the meantime you will be paying interest on the mortgage out of taxed income, but gaining tax free on the amount you put into the ISA so if your mortgage rate is say 4% you only need to gain 4% in your ISA to match that. You could use a short dated GILT to do that if you wanted to reduce the risk further for example.
Sarnie said:
Doppel99 said:
If you are guaranteed £180k in 4 years time then it makes total sense to borrow against that in order to avoid losing £80K of ISA allowance.
What the markets do in the meantime is irrelevant surely as it is the £180K lump sum that is guaranteeing the extra you have borrowed.
In the meantime you will be paying interest on the mortgage out of taxed income, but gaining tax free on the amount you put into the ISA so if your mortgage rate is say 4% you only need to gain 4% in your ISA to match that. You could use a short dated GILT to do that if you wanted to reduce the risk further for example.
From a mortgage lending point of view, you can't lend against that £180k, it's not how mortgage lending works, even if the customer thinks it's a good idea.What the markets do in the meantime is irrelevant surely as it is the £180K lump sum that is guaranteeing the extra you have borrowed.
In the meantime you will be paying interest on the mortgage out of taxed income, but gaining tax free on the amount you put into the ISA so if your mortgage rate is say 4% you only need to gain 4% in your ISA to match that. You could use a short dated GILT to do that if you wanted to reduce the risk further for example.
We have a base rate + 0.5% flexible mortgage and have deliberately avoided paying it off by keeping the balance owed at £30K so that we have instant access to a large low rate borrowing facility for any purpose without having to remortgage. We've dipped in and out of it over the years to allow us to take advantage of investment opportunities with good results.
obvs no idea what the rest of OP's circs are....
my take, as long as there's a path to repay/service the mortgage 'at some point'....why not use the monies to better long term advantage;
i pref to pay a low% on borrowing and have the ability to create more via isa/gia.
if circs aligned, i'd probs take more than 1 years worth of ISA contribution, and stuff the rest in a GIA. Even if it were invested cautiously, or not the full amt, then come the next year there'd be the option of pulling it out to add to isa in '27, or if things have done well, could use a sensible ( low) amt of margin to fund in '27.
don't even have to be aggressive in isa or gia, even a S&S isa will give a reasonable interest in cash balances, long as that is similar to the mtge cost, it just sets the opportunity to minimize taxes in retirement.
my take, as long as there's a path to repay/service the mortgage 'at some point'....why not use the monies to better long term advantage;
i pref to pay a low% on borrowing and have the ability to create more via isa/gia.
if circs aligned, i'd probs take more than 1 years worth of ISA contribution, and stuff the rest in a GIA. Even if it were invested cautiously, or not the full amt, then come the next year there'd be the option of pulling it out to add to isa in '27, or if things have done well, could use a sensible ( low) amt of margin to fund in '27.
don't even have to be aggressive in isa or gia, even a S&S isa will give a reasonable interest in cash balances, long as that is similar to the mtge cost, it just sets the opportunity to minimize taxes in retirement.
Sarnie said:
Yes, they care about what the money is for, thats why they ask what the purpose of the funds are for.
From HSBC's lending criteria;
"We offer additional borrowing for a variety of reasons such as home improvements, debt consolidation and other lifestyle reasons. We cannot lend where the funds are to be used for investments or speculative purposes."
But they wouldn’t ask for a Wicks receipt for a fancy kitchen would they? So covering their back with the T&Cs. From HSBC's lending criteria;
"We offer additional borrowing for a variety of reasons such as home improvements, debt consolidation and other lifestyle reasons. We cannot lend where the funds are to be used for investments or speculative purposes."
BoRED S2upid said:
But they wouldn t ask for a Wicks receipt for a fancy kitchen would they? So covering their back with the T&Cs.
They can do, depends on the case as a whole such as loan amount and LTV, we often have to provide builders quotes/contracts, architects drawings, planning permission etcDoppel99 said:
But not n the case of a flexi mortgage as it's technically your own savings that you are taking out. They will increase the repayments as the term decreases but you can mage this yourself within the product
But we are not talking about a flexi mortgage, he is looking to ask a lender to borrow him money to invest, which they will say no to if he tells them what he is going to do with the funds.Sarnie said:
But we are not talking about a flexi mortgage, he is looking to ask a lender to borrow him money to invest, which they will say no to if he tells them what he is going to do with the funds.
He's planning to invest his kitchen renovation money, then borrow to renovate his kitchen.Why wouldn’t you just tell the mortgage company it’s for a car purchase? If it ends up in an ISA for four years while you find the right car there’s nothing wrong with that; they’d only charge you an early repayment charge to pay it back.
(I realise that technically it’s fraud, but no one is going to care in this case as it’s impossible to prove you didn’t intend to buy a car.)
(I realise that technically it’s fraud, but no one is going to care in this case as it’s impossible to prove you didn’t intend to buy a car.)
Simpo Two said:
He's planning to invest his kitchen renovation money, then borrow to renovate his kitchen.
Thats not what he said in his original post."In my head, I could potentially remortgage in May 2026 when my current deal is up and extend the mortgage by £40k and add it to two ISAs, then repay it when I retire."
I'm only trying to help out a fellow PH'er not say the wrong thing when he applies for a mortgage. Because if he says it's to put in an ISA, it will be declined.
Edited by Sarnie on Tuesday 11th November 08:50
Sarnie said:
I'm only trying to help out a fellow PH'er not say the wrong thing when he applies for a mortgage. Because if he says it's to put in ISA, it will be declined.
Indeed, not sure why posters are having a go at you, I had a friend who asked to extend his mortgage to buy shares (ironically in banks) and he was declined, as was his application for a new kitchen a week later 
.Gassing Station | Finance | Top of Page | What's New | My Stuff