Martin advises to pay off your debts...

robbie1980

I'm going to appear stupid here, but it won't be the 1st time!

If i have 80k mortgage @ 5.92%

Surely i'm better off putting £1000 in an ISA at 6.3% than paying it off my debt? - i'm assuming Martin's article is aimed at people who save use a banks saving account at 4% and paying tax too.

Thanks

Aegis

Generally speaking I think you're right. ISAs and investments both have the potential to outgrow your mortgage interest in the long term, so sensible investments or tax-free high-interest savings can be used to help pay off your mortgage when the time comes.

However, do remember that you are limited to £3000 this year and £3600 in subsequent years for your cash ISA allowance, which might not be sufficient by itself to pay off your mortgage, in which case overpayments would probably be more effective than normal savings.

I'm going down the investment route myself.

Jonbvn

Hi,

This article actually says that you should pay off short terms debts such as personal loans and credit cards etc. before saving. However, there is another article which addresses the issue of savings vs mortgages, which is not so clear cut.

HTH.

dunstonh

Short term debts should be cleared before investing but with cheap long term borrowing like mortgages, the position is not as easy to make and there are a number of good reasons to keep the mortgage going but invest. However, as Jonbvn says, it is not clear cut and some will be better clearing the mortgage and some not.

robbie1980

dunstonh wrote: »

Short term debts should be cleared before investing but with cheap long term borrowing like mortgages, the position is not as easy to make and there are a number of good reasons to keep the mortgage going but invest. However, as Jonbvn says, it is not clear cut and some will be better clearing the mortgage and some not.

I'm purely thinking from saving money. If i have 1k in an ISA 6.3% i am earning more interest than i would be paying on 1k @ 5.92% on a mortgage. So that 1k is working harder for me in an ISA - yes?

My thinking is to fill up my ISA entitlement so i have 'rainy day' money but i want to know this money is working harder than it would if i paid it off my mortgage. After my ISA is full i will overpay the mortgage with any excess i have.

Thanks for your comments so far - appreciated.
Rob