Overpay mortgage vs save in ISA confusion

-chris84-

Hi, hoping someone can clarify this for me!

I have an HSBC tracker at 2.59% with unlimited overpayment facilities, paying off at the standard amount/month (capital repayment).

I also save monthly into both stocks & shares and cash ISAs. However, due to rubbish savings rates, I'm considering using the cash Isa allocation towards mortgage overpayments. Online articles seem to imply that this is worthwhile if your ISA rate is less than your mortgage rate.

HOWEVER.. I've been playing with some online calculators, and it doesn't seem to work out like this. It seems the ISA rate can be lower than the mortgage and still win over time. For example:

2.59% mortgage, £150k, 25yrs, £300/month overpayment
= £21,594 interest saved (using HSBC calculator)

1.7% cash ISA, 25yrs, £300/month saved
= £22,013 gained in interest (using MSE Isa calculator)

Therefore the ISA with the lower rate wins. Or have I got this wrong?!! I want to do whatever wins in the long run!

Thanks!

Thrugelmir

Overpaying the mortgage will result in a shorter mortgage term. Therefore you are not comparing like for like. As you won't be paying the mortgage for 25 years. Yet you are comparing to saving for 25 years.

-chris84-

Ah yes good point! Don't know how I missed that! :doh:
So, taking that into account should I assume I'll be better off overpaying the mortgage unless I can find an Isa rate above 2.59? (which is not looking very likely!)