Overpayment vs Stashing the same amount into an ISA

Morn

Another question,

I was talking with a friend who told me that he was recommended by an IFA to overpay his mortgage but into an ISA that has an higher rate than his mortgage. The idea being that when it was time to remortgage, he would withdraw the savings and use it to lower the LTV ratio on the remortgage.

I have looked into this idea for my own situation, and based on the deal I am looking at with the Coventry BS @ 3.99% fixed for 5 years I can not find an ISA that pay a higher rate.

As they offer the ability to overpay 10% annually, in my case I believe it makes sense to overpay directly and sweep the remaining money at the month end into a savings account to be used at remortgage time etc...

Have I missed the point here or does that sound about right.

Thanks

bni

If the interest rate is higher on the mortgage than the savings, then you will save more money buy overpaying on the mortgage. However, another point to consider is that money paid on the mortgage (most of them) you can't easily get back if you would need it for something unexpected. Interest rates being equal (or close), having the money in savings would be more flexible.

Morn

bni wrote: »

If the interest rate is higher on the mortgage than the savings, then you will save more money buy overpaying on the mortgage. However, another point to consider is that money paid on the mortgage (most of them) you can't easily get back if you would need it for something unexpected. Interest rates being equal (or close), having the money in savings would be more flexible.

Perfect, as I thought then. Have money away to cover payments if things go pete tong, but other than that unless I can beat the rate or the product does not allow over payments I will stick with the direct overpayment plan.

Let_Us_See

Why not consider an offset mortgage. You can then have your cake and eat it!

JimmyTheWig

Only thing I'm going to add is that you get an ISA allowance per year. When the year is up, the allowance is gone if you haven't used it.

If your longer term plans are to involve saving more cash each year than can go into a cash ISA in a year then it might make sense to start building up the ISAs now.

bni

Let_Us_See wrote: »

Why not consider an offset mortgage. You can then have your cake and eat it!

Offset is great, shame that so few are available and often with higher interest rates..

Let_Us_See

There are some attractive rates around and a good consideration if you are a higher rate tax payer.