The Lemon Fool

Sorry, but I just cannot seem to get my head around this.

I have just over two years to run on a fixed rate mortgage (at 1.3%) which I have been overpaying to the maximum allowed.

I currently have two years worth of overpayments (approx £15k) sitting in a current account.

Would I be better off continuing to overpay the mortgage or should I put the £15k into a two year ISA at 4.5% and then pay off a bigger chunk when that matures at the end of the fixed mortgage period?

DaveP wrote:Sorry, but I just cannot seem to get my head around this.

I have just over two years to run on a fixed rate mortgage (at 1.3%) which I have been overpaying to the maximum allowed.

I currently have two years worth of overpayments (approx £15k) sitting in a current account.

Would I be better off continuing to overpay the mortgage or should I put the £15k into a two year ISA at 4.5% and then pay off a bigger chunk when that matures at the end of the fixed mortgage period?

Noting that you said you are already overpaying the maximum allowed on the mortgage and that the mortgage interest rate is fixed at 1.3%, then assuming that you will be allowed to pay off a bigger chunk at the point in 2 years time when the fixed rate ends, then surely you would be better off saving the funds at c 4.5% until that point in time.

If borrowing costs 1.3% and savings yields 4.5% looks like you'll be better off saving the £15k. It's my current plan.
Some will say being mortgage free is better than just making a few quid. How much longer do you have on your mortgage? If you're near the end of term the freedom of being debt free could prompt one to bang £15k at the mortgage sooner rather than later. Some mortgages have maximum overpayment levels after which there are charges I think this is a wrinkle to double check, you say you make the max overpayment currently so check.
An ISA protects your savings from any tax implications.

DaveP wrote:Sorry, but I just cannot seem to get my head around this.

I have just over two years to run on a fixed rate mortgage (at 1.3%) which I have been overpaying to the maximum allowed.

I currently have two years worth of overpayments (approx £15k) sitting in a current account.

Would I be better off continuing to overpay the mortgage or should I put the £15k into a two year ISA at 4.5% and then pay off a bigger chunk when that matures at the end of the fixed mortgage period?

I'd try not to be bamboozled by the ISA's on offer. It seems to me that the shielding is consumed by the provider.

Maybe try non ISA at c6% 2yr fxd and not worry about the tax (unless you would be taxable at the higher rate)

DaveP wrote:Sorry, but I just cannot seem to get my head around this.

I have just over two years to run on a fixed rate mortgage (at 1.3%) which I have been overpaying to the maximum allowed.

I currently have two years worth of overpayments (approx £15k) sitting in a current account.

Would I be better off continuing to overpay the mortgage or should I put the £15k into a two year ISA at 4.5% and then pay off a bigger chunk when that matures at the end of the fixed mortgage period?

Until your current deal ends in 2 years time, you are paying the mortgage at a rate of 1.3%. You can either pay down the mortgage and save yourself the 1.3% or lock the £15k into an 4.5% tax free ISA..... Lock into the ISA would be my answer.

Gnawsome points out that if you can find a non-ISA account that will/might pay you more, you might be better off investing in a 2 year bond outside of an ISA. It will depend on whether you have any other taxable savings as you can earn up to £1000 per annum on savings before tax. However, £15k invested in a 2 year bond would mean that when it matures, the interest you receive would exceed this (£15000 * 1.06*1.06 = £16854 , or £1854 interest, taxable in the year it matures.). can you split the £15k into yours and a partners name, maybe? Failing that, split it into an ISA + Fixed rate taxable account that gives you the best return (whilst ensuring the interest on the taxable part stays below £1000).

I was looking for top cash ISA rates just now https://www.moneysavingexpert.com/savin ... -cash-isa/ Virgin offer 5.3% I year fix. Not investigated further but that looks a good deal especially if ISA not used already. Virgin might be app only, like they are for current accounts.

kempiejon wrote:I was looking for top cash ISA rates just now https://www.moneysavingexpert.com/savin ... -cash-isa/ Virgin offer 5.3% I year fix. Not investigated further but that looks a good deal especially if ISA not used already. Virgin might be app only, like they are for current accounts.

Funnily enough I wandered into a Virgin Money retail shop recently asking about accounts.

They told me the usual "apply online" shtick. But then the manager took me into his office and did it for me.

No point in having offices on the High Street just so the folks working there only say "download the app"!

Thanks all, was as I suspected - I just had a nagging feeling that I was missing something. Obviously not!