Stocks & Shares ISAs vs Overpaying Mortgage

steampowered

The default answer to this question is usually S&S ISA, for the following reasons:

1) The major stock markets return on average about 7.5% per year. A medium risk investment fund which also holds things like property and bonds might return 5-6% per year. That's higher than what you are paying on the mortgage. 

2) If your goal is a mortgage free property, if you save into a S&S ISA and use that to pay the mortgage when the ISA balance matches the mortgage balance, you may find that you clear the mortgage faster if you simply overpaid the mortgage.

3) S&S ISAs are more flexible - they can be sold at any time. 

4) Building up a S&S ISAs gives you a tax free investment pot that will generate tax free returns forever, until you withdraw it.

However, overpaying the mortgage can sometimes be worth it, if that brings you into a lower LTV bracket which enables you to remortgage onto a lower rate.