Over-payment or ISA?

Spint

I don't fully understand how the interest works in mortgages but right now my wife and I overpay our mortgage each month as much as possible. We know that no matter how much extra we pay in, we won't be penalised when our fixed rate runs out in 2029.

However, I'm wondering if we should put all the extra payments into an ISA instead because our mortgage rate is 2.44% and the ISA is 4.3%.

Does it depend on 'how' we overpay our mortgage such as if it's reflected each month with our mortgage payment? Our mortgage repayment amount currently does not change each month.

Also, the money we owe (mortgage) is far more than our ISA, if that helps.

Thanks very much and hope you can help.

Brie

I believe the general consensus is to pay to the highest interest - in this case your ISA. The gain to you is the extra nearly 2% that you gain on the money. If you both "overpay" to the ISA yearly max then another savings account might work well too.

This assumes you will be able and willing to take money out of the ISA at renewal time if the mortgage rate is then higher.

Isthisforreal99

As long as the interest earned on the ISA is greater than the interest charged on the mortgage then your overpayment is better invested in the ISA.

Newbie_John

Think of a mortgage like a savings account with negative balance.

You have now choice of putting £1000 to 2.44% account or 4.5% ISA account..

surreysaver

Do you overpay your mortgage and save 2.44%, or do you save in an ISA and earn 4.3%?

Its as simple as that. There may be other things to take into account - if you need the money, will be able to as easily retrieve it from your mortgage as you can from your ISA?