Overpay mortgage or invest in ISA to overpay mortgage?

papalazarou1977

Hi,

I have a question, my mortgage repayments are around £560 per month, I overpay to £800 in total and I am able to overpay more. Am I better off maxing out an ISA over the tax year and putting that into my mortgage in 1 lump sum, or am I better off putting it all into a mortgage in monthly overpayments? I turned Radio 5 on a while ago and Martin was talking to someone about how they were better off the ISA route, but he said it was for that specific guys circumstances, and he was retired I believe. I didn't hear the whole call. Anyway, my mortgage is fixed at 3.19%. I'm not sure what an ISA saves roughly? 1%?

Any help and advice would be greatly appreciated.

Thanks,
Jamie.

northerner999

It comes down to interest, saving beyond your own emergency fund requirements ahead of making overpayments only works out better if you're earning more interest than you're paying on your mortgage.

Therefore, generally, it makes sense to overpay (if you can do this without penalty, you are on a fixed deal so make sure you don't go over the limit which would incur a penalty).

Thrugelmir

papalazarou1977 wrote: »

Anyway, my mortgage is fixed at 3.19%. I'm not sure what an ISA saves roughly? 1%?

Then the first thing you should do is review what rate of interest your ISA is paying. If it's an instant access ISA then most certainly will be below 2%. In which case paying down the mortgage makes sense. Though as has been mentioned previously you should maintain an emergency fund. Little point in having no savings then resorting to using a credit card to cover emergency expenditure. As you'll have gained no benefit.