ISA vs Mortgage repayment ?

almac66

Hi all,

General:
Given the parlous state of returns on any sort of investment I was wondering if it would it be better to pay off a mortgage than invest in an ISA ?

Specifics:
I have 2 young children - 5 & 2 - for whom we have opened ISAs into which we pay monthly.If instead we use that money to overpay the mortgage surely I'm better off compared to any tax-free interest gained ? Once the mortgage is paid I am free to use that money to provide for the kids.I know the mantra that says you *must* have an ISA, it just that it doesn't seem to add up when returns are so low & I don't have large amounts of cash to invest.

The one thing that goes against the grain not to save NOW for the kids future..

Feel free to point me to another thread if its an old discussion..

Cheers

atush

It will depend on what rate you are paying on your mtg which you did not say, and what yours (rather than your children's) cash position is as you need 6 months spending as a safety buffer.

jennifernil

I would agree with that.

Once you have an "emergency fund" , say 3 or 6 months spending, and have covered savings for particular things like holidays, new car etc, you need to look at what is most cost effective. No point in saving more if the interest rate is less than you are paying on the mortgage.

Have accounts for the children to put in birthday and xmas money, other gifts from relatives, maybe do regular savers for them with just the £10 per month minimum, then this can be varied if they get a gift. But long term cash savings will be eroded by inflation, so you might want to consider alternative investments.

Tammer

Hi,

The answer isn't quite as straightforward if you're investing in a Stocks and Shares ISA.

Also remember that if you're mortgage rate is, say, 3%, inflation is currently 5% so your bank is effectively losing money on your deal. Over time, your mortgage is getting progressively, relatively, smaller as inflation erodes the amount outstanding. This assumes that inflation will continue to be higher than your mortgage rate of course.

dunstonh

Personally, I am overpaying the mortgage, have increased the investments (such as ISA) and increased my pension contributions.

i dont see the point of doing all in one option but instead doing multiple options.