Overpay or save?

vb1986

Hello all,

I have a mortgage with a 2.44% interest rate, and an ISA that pays annual interest of 2.8% but has penalties if I withdraw early. Assuming I make no early withdrawals from my ISA, would I be correct in thinking that I am better off paying into my ISA rather than overpaying my mortgage?


Thank you!

justcat

Is your ISA yearly? Or is it fixed for a couple of years?

If yearly, pay into the ISA and then each year make a large overpayment (depending on the terms of your mortgage).

vb1986

My ISA is fixed for another four years and my mortgage is fixed for another two years.

justcat

Is your ISA payment also fixed or can you pay in what you like?

There is so little in it and difficult for me to work out without amounts. Take a look at this http://www.moneysavingexpert.com/mortgages/mortgages-vs-savings

I would usually say that you should save as the interest rate is higher on your savings but as your mortgage has less to run than the ISA I would say the other way round.

I'm sure someone more knowledgeable can help more than me!

AndyT678

It's impossible to say for sure which will be better over 4 years because you don't know what your mortgage rate will be in 2 years time. It could easily be 4.5% in which case you'd be much worse off with the ISA.