Overpay Interest only Mortgage or ISA?

violetgirl12

Hi I have about 12 years left on an interest only mortgage, I have been paying interest only for about 10 years. I want to start clearing mortgage but am not in position to change to interest one,
My question is would I be better overpaying on Interest only mortgage, or saving in ISA or savings account and paying in lump sum?
If saving, any suggestions as to best way. Thank you in advance

kwame41

Can you overpay enough in twelve years to clear the mortgage? If so I would overpay the mortgage.


Check your T&C's though to make sure there no penalties for doing so.

violetgirl12

Thanks Kwame
At the moment I could over pay about £800 - £1000 a month, give or take emergencies , which should have me on track, would I not be better putting that in high interest fixed ISA and trying to make it earn for me?

kwame41

Problem with the ISA option is the rate of return.


Whats your mortgage interest rate?


If its higher than any savings account you can get it makes sense to overpay the mortgage. Also, if you overpay your mortgage the lump sum reduces each month and the amount of interest charged reduces due to the lowering of the lump sum. Your paying less interest and reducing the balance owed.


If you save a pot of money to pay it off. The relative interest will be less and you will still have the full amount to pay off the mortgage in twelve years.

AnotherJoe

violetgirl12 wrote: »

Thanks Kwame
At the moment I could over pay about £800 - £1000 a month, give or take emergencies , which should have me on track, would I not be better putting that in high interest fixed ISA and trying to make it earn for me?

A "high interest fixed isa" would be what, 1.5% tops? Whats the % on your mortgage?

violetgirl12

That makes sense, Mortgage interest higher, I will speak to them and look at small print, thank you all