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Mortgage Dilemma
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Rob B
Posted: 10 January 2025 11:15:01(UTC)
#1

Joined: 07/10/2018(UTC)
Posts: 1,704
Recently, every spare pound has gone towards mortgage overpayments. Debt now stands at £17,250. Around 15 months remain. It feels great.

My original plan was to pay it off by Xmas with further overpayments. Bye bye mortgage. Hello freedom. Very much an emotive desire rather than an optimum financial decision.

However.

My ISA AUM is low. I do want to walk away from The Man in c. 7 years' time. ISAs need to form part of my retirement strategy. With mortgage plus overpayments plus university costs plus life costs, the chance of fully contributing to my ISA in 2025-26 is remote.

The period Jan 2026 to Mar 2026 will not see me magic £20K to fill my allowance. £5K is more realistic. Mortgage will be gone but a year of full ISA contribution is lost.

What to do? Two options as I see it.

Option 1
Stay laser focused. Smack it out the park by Xmas. Gone. Focus on life and maxing out annual ISA from 2026-27 onwards. With overpayment charges after 10% allowance (2% until Jun then 1% for remaining year of mortgage) and an interest rate of 4.69% on my 2yr deal, it will cost c.£480 to clear it this year.

Option 2
Continue to put every spare pound into my mortgage until 2025-26 tax year. I've forecast I can bring it down to £12K. Then extend the term to 5yrs. Monthly payments reduce to between £215 and £225 on an interest rate between 3.75% and 5% over 5yrs. Interest costs of c.£1,300. Due to being so small and over 5 years, the actual mortgage rate is fairly insignificant. Contribute fully to ISA for 2025-26 / each year forward.

I don't think there is a right or wrong. Option 1 will be frustrating short-term but rewarding. Option 2 will cost me £800 more in interest compared to Option 1 but will allow me to invest £15K more (the £20K allowance minus the £5K I can do) next tax year.

What thoughts? Anyone else in the same boat? Am I over complicating things? Classic case of muppetry?
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Busy doing nothing
Posted: 10 January 2025 11:31:36(UTC)
#2

Joined: 01/03/2021(UTC)
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In the grand scheme of things your mortgage is quite small, dare i say manageable, i would therefore concentrate on maxing out your ISA, because who knows, one day the 20k annual amount could be reduced or indeed cancelled completely, so it's a very valuable allowance that could earn you a lot of tax free income in the years ahead. Others may disagree of course.
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5 users thanked Busy doing nothing for this post.
Rob B on 10/01/2025(UTC), Newbie on 10/01/2025(UTC), Raj K on 10/01/2025(UTC), Chris1986 on 10/01/2025(UTC), Guest on 11/01/2025(UTC)
Newbie
Posted: 10 January 2025 12:18:16(UTC)
#3

Joined: 31/01/2012(UTC)
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I'll Echo BDN above
Also think about whether you want to pay the 2% overpayment charge unnecessarily ?

If the mortgage was bigger and non manageable or becoming that then I would say pay it off.
If you can fix a rate and subsequently get a matching Gilt for part of it in an ISA, then you liability is matched and within an ISA. Then even if things to get hard you could draw on the ISA and pay the mortgage off.

With the current state of affairs, sheltering any assets in a tax efficient environment is a good option for the longer term.
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2 users thanked Newbie for this post.
Rob B on 10/01/2025(UTC), Guest on 11/01/2025(UTC)
Tug Boat
Posted: 10 January 2025 12:45:55(UTC)
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Get rid of the mortgage, it will make you feel great.
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2 users thanked Tug Boat for this post.
Rob B on 10/01/2025(UTC), Hilda Ogden on 10/01/2025(UTC)
Hilda Ogden
Posted: 10 January 2025 12:56:21(UTC)
#5

Joined: 31/07/2023(UTC)
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Tug Boat;330699 wrote:
Get rid of the mortgage, it will make you feel great.

+1.
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1 user thanked Hilda Ogden for this post.
Rob B on 10/01/2025(UTC)
Thrugelmir
Posted: 10 January 2025 13:00:13(UTC)
#6

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I'd be more focussed on what will achieve the best guaranteed return over the short time window. Rather than worrying about allowances or being debt free.
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2 users thanked Thrugelmir for this post.
Rob B on 10/01/2025(UTC), Guest on 11/01/2025(UTC)
Rob B
Posted: 11 January 2025 10:15:30(UTC)
#7

Joined: 07/10/2018(UTC)
Posts: 1,704
Appreciate those who commented / opined. A decision for early April.
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Keith Cobby
Posted: 11 January 2025 10:45:04(UTC)
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I paid mine off on 2 Jan as planned. I'm a bit surprised it didn't make me feel any different (probably because I could have paid it off a long time ago). So, as your mortgage is small, I would top up the ISA.
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1 user thanked Keith Cobby for this post.
Rob B on 11/01/2025(UTC)
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