I have money in an ISA, would I better using it to overpay my mortgage?

Question

I have just over £3000 in an isa and someone had advised that a better use of the money would be to pay off £3000 of my mortgage. I spoke to my mortgage advisor (skipton) and they said overpaying by that amount would bring my monthly amount down by £10 a month and there is no penalty if I overpay before the end of my period. I am a little bit sceptical about doing this as I think I would earn more than £120 interest on my £3000 in a year, is there any other benefits of overpaying I have overlooked?

Answer 1

You need to look at the compound interest that you pay on your mortgage. It is always good practice to pay off your debt, than keep the money in savings/investments.

To benefit from paying this amount into your mortgage account, you should keep the monthly payment as it is and it will help you pay off your mortgage early (assuming you are on repayment mortgage)

If you are on an interest only mortgage, and are on a rate that is much lower than your ISA, than keep the money where it is.

Answer 2

I believe you will be better off paying in mortgage. As per your question you will save £10 month. Lets Calculate £10(@month) x 12 = £120 per year. £120 (@year) x 10 ( assuming 10 year mortgage) = £1200. Even interest rate goes up or down still worth paying off. I reccommnd that if possible do overpayment. Even if you do £5 overpayment will reduce your interest on loan will reduce. You will be not able to see this difference immediately but sit down and check interest charged on statement you will notice difference in long term. Also you will be able reduce your mortgage term. Even if your mortage term reduce by 1 year than you can count how much money saved at present  instalments.