Overpay or stash away?

sarah1980

We are hoping to take advantage of Mortgage Express Early Redemption Penalty waiver. At the moment we are on a fixed rate of 4.99%. After speaking to our broker he has said we can apply for a 2-year fixed rate with a different lender at 3.49%.

At the moment we are on interest-only and paying around £900 per month. If the new mortgage goes through, we will be paying around £600 per month. Being dedicated MSE'ers we want to do something worthwhile with the spare £300 per month we will have.

At the moment we have 3 options:

1) Make overpayments towards reducing the capital
2) Make overpayments and take a payment holiday at some point
3) Put into a cash ISA (which will take one of us up to the cash ISA limit each year)

With regards to option 2), I am self-employed and we hope to have a second child some time next year, so this would be handy for that time. But equally option 3) is feasible for the same reason.

Any advice would be greatly appreciated.

Many thanks