The value of investments and any income from them can fall and you may get back less than you invested.

Case Study: Paying off the mortgage

Case Study: Paying off the mortgage

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This case study shows how saving into an ISA could help you to pay off your mortgage, freeing up your finances.

Anna, 47, would like to be mortgage free by her mid-fifties. She runs her own consultancy firm from which she draws an income of around £75,000 per annum. Anna hopes that paying off the mortgage will enable her to work fewer hours, allowing her to live life at a more relaxed pace.

The plan

  • Anna has an interest-only mortgage on her main house of £91,000.
  • Anna talks to a Brewin Dolphin financial planner who suggests that in order to pay off the mortgage, she makes use of the £67,000 that she has already invested in a cash ISA.
  • Using existing savings means that any future disposable income can be directed into Anna’s pension, which she has neglected in recent years, where she will benefit from income tax relief. However, some changes still need to be made.
  • Anna’s cash ISA is currently paying interest of only 1.5% a year.  If she continues to earn such a low rate of return it will take Anna 26 years [1] to accumulate the £91,000 she needs to pay off the mortgage. Clearly that isn’t going to work.
  • After a discussion with her financial planner about risk, Anna agrees to transfer the money in her cash ISA to a stocks and shares ISA. While investing in equities will increase the chance of Anna’s ISA portfolio falling in value over the short term, equities have historically delivered higher returns than cash over the long term.
  • Assuming the stocks and shares ISA achieves an average annual return of 4% net of charges, Anna will reach her goal of paying off the £91,000 mortgage in just under eight years’ time [2], coinciding with her 55th birthday.

Ten years on

  • The plan means that by her mid-fifties Anna is in a good shape financially. She has paid off her mortgage and her pension is back on track. This gives Anna the confidence to reduce her working hours and spend more time on the things she loves outside of work.

 

 

[1] Source: Brewin Dolphin.

[2] Source: Brewin Dolphin.


The value of investments can fall and you may get back less than you invested.

Past performance is not a guide to future performance.

No investment is suitable in all cases and if you have any doubts as to an investment's suitability then you should contact us.

Please note that this document was prepared as a general guide only and does not constitute tax or legal advice. While we believe it to be correct at the time of writing, Brewin Dolphin is not a tax adviser and tax law is subject to frequent change.  Tax treatment depends on your individual circumstances; therefore you should not rely on this information without seeking professional advice from a qualified tax adviser.

Brewin Dolphin does not provide mortgage advice.

Brewin Dolphin is authorised and regulated by the Financial Conduct Authority.

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