£3000 in Isa or pay off some mortgage?

jamesd

zag2me, for a 0.25% interest rate difference on 3000 over 25 years you're about 193 better off by saving in a cash ISA than overpaying the mortgage. Not a huge amount.

If you had a 100000 mortgage and got it at 5.25% interest only (437.50 a month) and saved the 161.75 difference between that and repayment (599.25) in an ISA at 5.5% you'd be about 3888 better off in 25 years, enough to repay the mortgage 6 months early.

It's easy to underestimate the effect of a mere quarter of a percent.:)

It's more interesting if you're investing and get as little as 7% from your investments. That ends up 31355 better off, or repaying early by about 4.35 years. Of course this is less predictable than saving and mortgage repayments, so it's not for everyone. That 4.35 year margin is enough to recover from an event like the stock market fall about five years ago happening at the worst possible time (the end) and still break even at 25 years even if you completely ignored the need to start shifting into lower risk in the years before the end, which would protect you.

jamesd

Ariadne, yes, if you don't like investing (rather than saving) that first mortgage is a good place to put the money, since it's a little better than the cash ISA rates. The main reason to use an ISA instead of that one is to get the ongoing tax benefits after that mortgage has been paid.

If your second part can be switched to interest only, doing that and paying the difference between interest only and repayment to the first mortgage would save you about 6 per 100 in monthly payment switched each year. Your lender might not let you do that, though.

Joseyjo_2

Many many thanks to you all for your comments and advice. I am fairly new to this process and as a result once I posted this thread I lost it! It is thanks to Mikeyorks that I am here once again!

I have decided to go with the ISA option for now as it does make more sense in the long run. I have no other debt at the moment apart from my mortgage, but I can see that changing in the near future so it will be nice to have some savings to fall back on. I also have available resources on credit cards for emergencies, but I would prefer not to go down that route if possible.

Many thanks again to everyone who commented.

Joseyjo