ISA or mortgage

[HelenWick]

Any advice much appreciated
I am 49 self employed and have a £140k mortgage which is about to come out of the fixed period.
I have £90k saved in a cash ISA.
Am I better to use this money to reduce my mortgage in such uncertain times?
I only have £15k in a Pension which is my other concern
Thanks for reading

Depends on your LTV and affordability, plus how secure your income is. Unless you're struggling with income multiples or LTV % I'd just do a straight remortgage and use some/most of your £90k separately.

Overpaying the mortgage is a nice feeling but your money will work far harder over time by getting more into a pension for the tax relief or investment ISA as that should have a lot better growth over time.

Have a look at Meaningful Money, there's some videos that discuss your questions (overpay or invest, pension or ISA)

meaningfulmoney.tv/video/

Think about it this way - when you you retire, what do you want/need? A paid-for house and an income sufficient to live off. (Work out what you need - websites will help. Some say 70% of your retirement income, others give actual amounts for a ‘basic’ or ‘comfortable’ retirement).

So you need to shovel money into both your mortgage and your pension ASAP. Dave Ramsey (see his videos on YouTube) strongly says that despite the fact you can make more money by investing in the stock market, you should pay off your mortgage first, as:

1. once you do so you can invest the amount you previously spent on the mortgage, and
2. behaviorally, people don’t often save the money they say they will, but once paid into the mortgage they can’t withdraw it.

Watch some of his videos on the topic (YouTube search) and listen to his arguments and decide what you think works for you.

I would probably think about upping pension contributions or switching the cash ISA to a stocks and shares ISA and just find a new mortgage deal.

If it was me, I would pay the £90k off my mortgage, and have £50k left. I would also make a plan to buckle down and pay off the remaining £50k ASAP and within 2 years maximum. So by age 51 you have paid off your house and then can put the entire amount of your mortgage payment (and perhaps a bit more) into your pension and keep that up for the next 15-20 years until you are 66-71 and will retire.

You’ll need to do the exact figures to see if this will give you enough to live on, and to see how much money you need to put into your pension.

Thank you all so much, really excellent advice. I am off to research

Technically paying the mortgage is always better but I decided to move into an interest only mortgage and keep the capital because:

• I am now the only person in the house

-the house is too big for me, I cannot see myself living here until I die or go to a nursing home

• it is unlikely the house will go to my son. The house will end up being sold to pay for my nursing home fees.

I would rather enjoy my present a tiny bit more and support my child better now than sacrifice so much to pay for something I am not going to enjoy. Once I need a nursing home the house will be sold to pay the reminder of the mortgage and to cover nursing home fees. In the meantime, my mortgage payments are so tiny they are affordable even with my calculated retirement income.

If I run out of money, I can always sell the house, pay the remaining mortgage and buy a smaller house without a mortgage.

Whatever I am saving by not repaying the capital, is put in a LISA to help DS buy his own house when the time comes.

@TheBigDilemma Gifting the money to your son now instead of paying off your mortgage is only a smart move if you do need to go into a nursing home. Most people tend not to look at it this way. You don’t say how old you are but once you retire and want an interest only mortgage you will be paying over the odds.

Interest rates are so low for mortgages that I would try and fix the rate till retirement and plough everything possible into the pension.

At present our mortgage gets smaller every year just by virtue of inflation, let alone repayments. 10k put into your mortgage today will save you vastly less in interest than the 12k after tax relief should gain in your pension.

[quote ForensicAccountant]@TheBigDilemma Gifting the money to your son now instead of paying off your mortgage is only a smart move if you do need to go into a nursing home. Most people tend not to look at it this way. You don’t say how old you are but once you retire and want an interest only mortgage you will be paying over the odds.[/quote]
Old enough to know I am not going to be able to climb up the stairs of my current home in the next few years!

My LTV is so low, it doesn’t even make sense to downsize just now. I admit however that I am in a good position for this interest only move as if I downsize I can pay the reminder of the mortgage and buy a smaller home as a cash buyer.