Overpay, or invest?

EvoMan

Hi, new to the forums, but this dilemma has been playing on my mind for a few months now.

I was lucky enough to get a fix on my mortgage until Feb 29, with an interest rate of 1.8%

It's a 30yr mortgage, so I was expecting to overpay to bring the term down if nothing more.

Now that interest rates have gone up, I made the decision to up my overpayments, in the hopes of bringing the total down, so I don't take a massive hit when the fix ends.

However, at the moment, my stocks and shares ISA is paying 5.2% (Daily) interest on uninvested cash. 

I'll be honest... I'm not entirely sure on how secure this is, but the funds they invest in are supposed to be low risk, so I have a little bit of uninvested cash sitting there growing daily.

The crux of the issue is - is it better to move the £150 monthly over payment into my S&S ISA and collect the 5.2% each day, OR keep overpaying on the remaining £68,000 mortgage.

My risk averse side says to overpay, but I'm  currently receiving roughly 30p a day on £2000 in my S&S ISA and so over the next year, I could increase that by 50% at least.

With my mortgage interest being charged at 1.8% it feels like a no brainer - invest and then drop a lump sum.

FYI - I believe it's a maximum of 10% a year overpayment allowed, so I'm not in danger of reaching that.

Brie

I think you've got the right idea.  Push the excess money into solid no risk accounts with high interest and then throw it all at the mortgage nearer the renewal date. 

saajan_12

Strictly yes you could add the money each month to your S&S account and pay it off as a lumpsum when your fix ends. A diversified fund should be fairly low risk, and a 5y timeline isn't too bad to pull the money out again. If you are worried about the risk, then you can also open a high interest cash ISA which will also get a good return and guaranteed by the UK gov. 

However the amounts are fairly small here - in the first year, if you drip in £150 a month ie £1800 over the year, then the ~3% difference is equivalent to £25. So up to you if that's worth the hassle (if any).

Of course if you can leave the money there beyond the year then it'll continue gaining, so over the 5 years, at 150 a month, you'll be up ~£600. 

Trencherpilot2

Be careful, I also have a S&S ISA that pays a similar interest rate, but only on £3000, over the next 5 years, 150 a month would give a total higher than that limit..... As always, read the small print.