Overpay mortgage or pay into ISA?

VodkaSorbet

Not sure if this is the best place to post, but I am trying to work out at what point I am better off overpaying my mortgage rather than paying that money into an ISA.

Up til now I have had ISA rates higher than my mortgage rate but I think that is about to change.

The mortgage rate is 4%.

Is there an easy way of working out what ISA rate I would need to get to make it worthwhile paying into that rather than overpaying the mortgage?

To complicate things, it's a BTL so I can offset the mortgage interest against tax. Not sure how to factor that in, as it will only start having a (negative) effect on the tax I pay once I've paid off the mortgage (which will obviously be sooner if I am overpaying).

Many thanks!

Martinslovechild

If I've understood the question correctly, you'll need a rate of greater than or equal to 4% on your ISA. As ISAs are tax-free, there's nothing to deduct and therefore the rate you see is the rate you get.

I haven't looked at Cash ISAs as I can pretty well predict that you won't see a single product available which offers anything like 4%. Have a look at Stocks & Share ISAs as firstly the annual allowance is double that of a Cash ISA and secondly the long-term returns are much higher than a Cash ISA.

Gromitt

Unless you opened the Nationwide Flexclusive ISA last year (4.25%), you are pretty much screwed. Might as well pay off the mortgage!

MGAstra

Only the interest on the mortgage is tax deductable.

My mortgage interest is only 2% so I put spare cash into the ISA wrapper and play the shuffling game to keep a high interest rate.

For my situation I think there is an advantage to getting money into ISA wrapper in the long run. (eg if interest gain from ISA pays for the interest on the mortgage, then the mortgage will be paid off at the same rate anyway but once that has gone then I will have a load of cash generating tax free income)

sharpe106

my mortgage is 3.7% so can guess what I am doing, although I do put in a small amount into an ISA each year as once my mortage is paid of in about 6/7 years I will be able to put more than the max in each year so in the long run will work out better, although granted not a lot.

Have not really looked at stocks and shares ISA's yet but will probably give one a try with some of next years allowance and see what happens