Confused? Pay off mortgage or S&S ISA?

mgh

Hi

This may sound like a naive question, but I don't know whether it is best to overpay my mortgage or invest in a stocks and shares ISA?

I have 12 years left at 2.99%. If I overpay at £500 per month I will reduce my mortgage period by 6.4 years and save £6600.

My thinking is that if I invest this extra £500 months instead I will make more of a gain that the £6600 I save?

Am i missing something obvious?

Many thanks in advance

mgh

pippa80

hi mgh,

have a look at the article on the main site - should i overpay my mortgage?

http://www.moneysavingexpert.com/mortgages/mortgages-vs-savings

The calculator there says that you should overpay unless you earn 3.7% as a basic rate taxpayer,5% at the higher rate or 6% at the additional rate

I'm not sure about S&S ISAs and investing ... but the top cash ISA at the moment is 3.3%, so you're better off overpaying.

Hope that helps!

hugheskevi

My thinking is that if I invest this extra £500 months instead I will make more of a gain that the £6600 I save?

Over a reasonable period of years (at least 5) it would be very surprising if you couldn't make a return of more than 2.99% p/a investing.

Am i missing something obvious?

No. You are effectively borrowing to invest.

You have a known liability at 2.99%. You can pay that, and lock-in a return of 2.99%.

Or, you can choose to accept investment risk with the expectation of the returns exceeding the rate of interest on your liability. The risk is that your investments perform badly, lose money, and you are still liable for the interest on the mortgage.