Pay Off Mortgage Or Put The Cash In An Isa?

[Twilkes]

Hi there, just a quickie.

We have a flat that was bought around 7 years ago for £53k, and now have around £20k left on the mortgage (interest only), and are charged about £34 in interest per month. We make regular monthly overpayments, and are wondering whether to make the one-off £5k overpayment in January that our mortgage rules allow.

It would be possible for us to clear the mortgage in two years, but at about that time we may be looking to either move, or remortgage and buy a second flat (we both weekend-commute and are currently renting in the second town).

Would it be best to clear the mortgage and start afresh if the move/second purchase happened, or have the cash in an ISA to use as a cash deposit? Would we be likely to get a second mortgage without clearing the first, if the total is within our affordability/income multiple?

Cheers for any help,

Tony

[Rozza]

I could be wrong on this but i dont see how overpaying on an interest only mortgage would help you. Or are you saying the 20k left is the interest part.

If it is interest only, then at the end of the mortgage you will still owe the full purchase price of the property (assuming you have no payment vehicle in place), so if you want to move then you need to make sure you can cover that extra (some of it or all of it could be covered by selling it)

[Twilkes]

I could be wrong on this but i dont see how overpaying on an interest only mortgage would help you. Or are you saying the 20k left is the interest part.

If it is interest only, then at the end of the mortgage you will still owe the full purchase price of the property (assuming you have no payment vehicle in place), so if you want to move then you need to make sure you can cover that extra (some of it or all of it could be covered by selling it)

It's an interest-only mortgage, but we've been overpaying and thus treating it as a repayment mortgage - e.g. once we have paid that £20K we will own the flat with no debts.

So I guess my question is, is it better to own a property outright when moving/re-mortgaging to buy a second, or better to have cash in the bank and a small mortgage left on the first property? There might not be much between them financially, but logistically is one option easier than the other?

[tim123]

It's an interest-only mortgage, but we've been overpaying and thus treating it as a repayment mortgage - e.g. once we have paid that £20K we will own the flat with no debts.

I think what Rozza is asking is "do the BS adjust the interest charged because of these overpayments?".

Not all do.

[Twilkes]

I think what Rozza is asking is "do the BS adjust the interest charged because of these overpayments?".

Not all do.

Yep, it allows overpayments, that's how the interest has come down to £34 on the £20k at about 1.5% (roughly, I think).

We'll probably keep hold of the cash so we can be more flexible, and can always put in a lump sum at a later date if the interest rate starts creeping up.

Cheers,

[longtomsilver]

Your outstanding mortgage debt is sooo low I don't think you have to worry about interest rates even if they go sky high. If you think that you can do better sticking it in an ISA (I think you can) do that. Moat mortgage lenders allow you to claw back overpayments either via payment holidays or simply putting a request in with the bank.

Good luck.

[Tiger Woods?]

Another thing to consider is, even if you cannot do strictly better in an ISA, having the money available in a liquid form gives you more flexibility, say if you lost your job or there was an unexpected bill. Mind you, if the former is a possibility, be careful about going over the social security limit.