Debt I understand, inflation I don't....

I have around £3.500 left to pay off my mortgage. I have the money in an ISA and could pay it off tomorrow but as I'm only paying .69 per cent on my mortgage interest and earning 3 per cent in the ISA there is no point. This much I understand however inflation is currently running at 4.5 per cent so where does that leave me? Inflation has a negative effect on savings so although I might be earning more on my savings than paying on my debt does inflation negate this effect?


  • Your right that you savings are currently failing to keep up with inflation and therefore are falling in value in real terms. However your mortgage debt is all being reduced in real terms at the same speed. Therefore current to maximise your income you should only pay your mortgage off when your savings fails below you current mortgage interest rate.
    This is slightly complicated if you are taking the money from ISA savings as the benefit of these savings is compounded as you can't get back this tax free wrapper once withdrawing funds.
    Hope this helps a little. Sounds like your doing great now.:T
    Mortgage Free Date
    [STRIKE]Original: Jun 2041[/STRIKE], Current:Nov 2022, Target: Oct 2020
    [STRIKE]2010/02 £14,500[/STRIKE], 2011/02 £13,000, Target 2012/01 £0K
    11k in 2011 challenge #32 4.8%
  • Sepa74Sepa74 Forumite
    962 Posts
    Yep, it's a pain. Real interest rates are VERY negative at the moment.
    Borrowed £150,000 in an offset tracker mortgage in May 2007 - MFD May 2041 (67)

    Jan 2012 - £125,620.02 / 2,913.87 / Nov 2032 (58) :beer:
    Apr 2012 - £122,901.88 / 3,170.91 / Jul 2032 (58)
    Jul 2012 - £122, 589.02 / 3,507.99 / Sept 2032 (58)
    Oct 2012 - £120,476.31 / 3,889.42 / July 2032 (58)
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