Isa or mortgage overpayment

temba

Hello, apologies if this is in the wrong place.

Until recently my mortgage was fixed at 4.79 % and I had lots of years' Isa allowance (about 23K in total) making more interest than that... so it made sense to leave it there.

However, now my ISA is making significantly less interest than I'm paying on my mortgage (now on HBOS SVR), though of course this situation could change as I would like to fix mortgage again soon and interest rates will go up eventually I guess. I know it makes sense right now to pay money into mortgage, but then I lose my tax free allowances for all those years.

Question is: should I overpay whole lot off mortgage, thereby losing my ISA tax free allowance?


Thanks, T

Primrose

The eternal dilemma! Normally experts recommend that if the interest rate on your mortgage is considerably higher than the interest you're receiving on your savings or ISA it makes sense to divert your spare cash to overpaying your mortgage. You don't say how large your mortgage is. I can understand why, with taxes forcast to rise in the future, you would want to retain the tax free sum you have accumulated if you are currently a tax payer. Another question you may want to ask yourself is "How secure is my job going forward?" If there's any risk of redundancy, reducing the amount and cost of your mortgage might make sense. However, if you currently have spare income every month which you would be otherwise be putting into savings, some might argue it would make sense to use that money to pay down your mortgage and to keep your ISA savings intact so that you have some emergency money available in the event of redundancy.