??Overpaying and the money it frees up.

Katgrit

I'm someone who likes to keep things failry simple when it comes to money so i'm not someone who shuffles things around too much if it'll get me an extra £3 interest.

I'm single and live alone, so its just me supporting me.
I owe approx £39,000 mortgage at 2.5%, 24 years left.
I have approx £10,000 in an ISA at 3.51%.

I cannot invest the £10,000 savings in a bond or lock them away for any time as my poor little car is dying a slow and painful death and wont be here in a couple of years.

I can make unlimited overpayments on my NW mortgage without penalty and this goes into a reserve pot that i can draw back on if needed. So at the moment I'm just thinking my £10,000 is better off where it is, as 3.51% is better than 2.5%.

BUT

if i pay the £10,000 into my mortgage that lowers my payments by about £45 a month. Now I know this extra money would be best put into an ISA each month but liking to keep things simple i thought i could just carry on with my CURRENT mortgage payment anyway. So i'd STILL be overpaying. I cant figure out where this spare money comes from. Well i know where it COMES from, but surely this is FREE money i wont benefit from (whether it be as savings in an ISA or extra month overpayments) unless i put the £10.000 into the mortgage?? I'm confused . If i chose the lower interest rate I get an extra £45 a month to play with (in a sensible way or course!). I'm not explaining from this very well am i?

The extra £45 means it not just a matter of looking £351 interest on ISA v. £250 saved on mortgage as I'd at first assumed. But I guess 2.5% interest on £45 (assuming over just 1 year) is less than the £99 initial difference over the year so i should just stick as I am until mortgage SVR increases to higher than 3.51%. Mmm?

Can someone pick holes in my thinking or tell me if I'm missing something? . Please ask if there's anything else i've not stated that would be useful.

DD2_2

You should use an online 'Amortisation' calculator to compare the difference between paying down a debt and paying into an investment.

Katgrit

Yeah I've done that, i could sit down and do all the calculations and work it out exactly to the nearest penny but I'm wondering if theres more a problem i havent thought of, or some aspect I'm not thinking of. I'm looking for more opinions rather than figures and calculations. Anything I've not thought of? Is there anything I'm missing.

DD2_2

You should go with whatever method motivates you better. I much prefer to see my mortgage debt going down than seeing my savings go up, so I generally pay everything directly onto the mortgage. Make sure though that you have enough emergency savings in cash (mine is in my offset) and that you're putting enough into a pension for a comfortable retirement.

Good Luck on becoming Mortgage Free though