Money Coach: Big ideas for losing interest

Donna Bradshaw, of independent financial advisers IFG Financial Services, agrees you should keep your stocks and shares Isas. 'They are long-term investments and will help toward funding for a comfortable retirement or as additional funds to help pay for their children's education. If they were cashed in now, it would convert what are currently paper losses into actual losses. Gordon and Alyx do, however, need to review their Isa portfolio to ensure the current asset mix meets their investment objectives.'

Bradshaw believes your portfolio is very speculative and particularly overweight in technology and healthcare funds - leaving you exposed to very high levels of risk. She suggests rebalancing your portfolio towards more moderate risk UK income and growth funds, either by switching funds or re-channelling your regular savings.

Regarding your mortgage, Boulger believes your current lender Nationwide has a good all-round mortgage proposition. 'Although their rates are not market-leading, some of them, in particular the five-year fixed-rate of 4.95 per cent, are competitive and are available to existing customers. In addition all their mortgages allow overpayments of up to £500 per month without any early repayment charge.'

While you could have ultimate flexibility with an offset mortgage, if Nationwide's proposition offers you adequate flexibility it is well worth considering as the interest rate is a little lower than on a fixed-rate offset mortgage and it will avoid changing lenders.

Boulger says a simple option would be for you to stay with Nationwide when your current fixed rate finishes in May and use your £18,000 Cahoot savings to reduce the balance on your mortgage before switching to another deal. You could then change the mortgage from interest-only to repayment as you can easily afford to pay more each month and want to pay the mortgage off as quickly as possible. The repayment term could be changed if necessary and could be calculated on the basis of what monthly payment you are happy to commit to. You could then over pay up to £500 per month, without penalty, in the knowledge that if you needed any of these overpayments you could stop making them. Any overpayments will immediately reduce the balance of the mortgage.

This will create a virtuous circle because, as the balance outstanding on your mortgage falls each month, less will be needed to pay the interest and thus a progressively increasing amount will be used to reduce the capital. This will be a significant help towards your intention of repaying your mortgage within 10 years. Nationwide offers fixed rates at the same level of 4.95 per cent for two, three or five years.

If you are looking for greater access to your savings an offset mortgage would be a better option. Boulger says only three lenders currently offer offset mortgages with fixed rates for at least three years. The most competitive are Yorkshire Building Society and Clydesdale Bank.

As your children are so young, it may be worth considering a stock market investment for their savings. Equities still outperform cash in the longer run.

Gordon and Alyx's to-do list:

1. Decide how much of your savings you would like to have access to.

2. Keep your mini cash Isas intact.

3. Keep stocks and shares Isas as long-term investments but look at making your portfolio less high-risk.

4. Use your Cahoot savings to reduce your mortage. Consider a longer-term fixed-rate with Nationwide.

5. Switch to a capital repayment mortgage and make regular overpayments to pay off your mortgage quicker.

6. Consider investment trust savings plans for your children.

· Let us help you

Do you need some financial coaching? We help readers to solve their financial challenges. This might be to stop spending and start saving, pay off debts, plan a pension or even to choose a bank account. You do not have to be identified. We deal with as many cases as possible in the paper but cannot give personal advice if your letter is not selected for publication. Write to: Money Coach, Cash, The Observer, 3-7 Herbal Hill, London EC1R 3EJ or email: cash@observer.co.uk

Guardian Unlimited © Guardian Newspapers Limited 2005