Pay Mortgage or take out ISA

puthsardarade

Hi, I currently have 2 mortgages:
One fixed at 4.79% which is going to change from November to 5.98%, I can make an overpayment of whatever amount I wish before my new deal starts in November
My second is a variable at 6.24%.

Which of the following would be the best option for my finanically.
* Invest £3k in a 6.30% AER National Savings Direct ISA
* Pay £3k on my first mortgage before Novemeber which will reduce the length of my mortgage further before the new deal kicks in.
* Pay £3k into my 2nd mortgage which is at the higher rate of 6.24%

My maths is average but I suspect the 2nd option would be best, any advice on the above would be appericated?

Thanks,
G

dunstonh

ISAs are a use it or lose it allowance. The long term benefits of using an ISA can be far more beneficial than paying off the mortgage. Especially if you hold your ISA into retirement or you are a higher rate taxpayer.

You should always hold back around 6-12 months spending in cash anyway so having that in an ISA is common sense.

puthsardarade

I already have an isa in place but my partner doesn't so I was going to put the money into their Isa if I selected that option, but I thought the second option would be better as the rate of 4.79% was lower which means paying more towards it now would help reduce even more of the outstanding mortgage?

Cheers,
G


Options:
* Invest £3k in a 6.30% AER National Savings Direct ISA
* Pay £3k on my first mortgage before Novemeber which will reduce the length of my mortgage further before the new deal kicks in.
* Pay £3k into my 2nd mortgage which is at the higher rate of 6.24%

Jonbvn

gagandeeptiwana wrote: »

I already have an isa in place but my partner doesn't so I was going to put the money into their Isa if I selected that option, but I thought the second option would be better as the rate of 4.79% was lower which means paying more towards it now would help reduce even more of the outstanding mortgage?

Cheers,
G


Options:
* Invest £3k in a 6.30% AER National Savings Direct ISA
* Pay £3k on my first mortgage before Novemeber which will reduce the length of my mortgage further before the new deal kicks in.
* Pay £3k into my 2nd mortgage which is at the higher rate of 6.24%

You should always pay off your highest interest rate debts first. Therefore, what you propose is the worst option.

From the above options, paying into the ISA should be first, otherwise you will lose it.