should i overpay on my mortgage or save?!

aimo

hi, looking for some advise! my husband and i both have cash ISA's paying 2.5% AER, and our interest rate on our mortgage is currntly 2.5%. Having read martins guide, it would suggest that we should fill up our isa's before overpaying on our mortgage, however as they are at the same rate and interest rates are likely to rise, would we be better to overpay on our mortgage rather than saving?! As i suspect the interest rate on our mortgage will increase by more than the interest we recieve on our savings?! hope that makes sense and any comments appreciated as i am a bit of a novice!

elsien

It partly depends on your individual circumstances and how much of a savings cushion you already have behind you. If you don't have much in the way of savings, if it were me I'd build up an emergency fund. Does your mortgage allow you to take payment holidays, as otherwise money paid into a mortgage might not be retrievable in a hurry if the unexpected happens.
I personally have built up my emergency fund, and now I'm paying half and half, some off my mortgage and some into an ISA, as I feel happier doing it that way given my circumstances.

aimo

hi, we have around £4000 in our Isa's (total) and should be able to get back any overpayments pretty quickly, (have had to do this before)

mlz1413

I have an ISA with last years limit in it, I've decided to keep that ISA but not add to it as I can only overpay my mortgage monthly (ie payments over £500 attract the 3% redemption charge).

As elsien says you need to look at your personal circumstances. But as the rates are the same then you aren't losing with either.

Questions I ask myself:
Will having the full ISA allowance per year help me long term?

How accessible are my savings (some fixed rate ISA's lose most of their interest if you make any withdrawal).

How much benefit do I get from overpaying my mortgage (ie can you get the money back / take a payment holiday if you need to)

xtmc

elsien wrote: »

It partly depends on your individual circumstances and how much of a savings cushion you already have behind you. If you don't have much in the way of savings, if it were me I'd build up an emergency fund. Does your mortgage allow you to take payment holidays, as otherwise money paid into a mortgage might not be retrievable in a hurry if the unexpected happens.
I personally have built up my emergency fund, and now I'm paying half and half, some off my mortgage and some into an ISA, as I feel happier doing it that way given my circumstances.

Yeah would recommend setting up an emergency fund