Should I overpay my mortgage or save in an Isa?

Q Would it be better to invest £5,000 in a cash Isa paying 3.3%, or pay off £5,000 of my £185,000 mortgage which has a fixed rate of 2.99% for one more year? GC

A It depends on what sort of mortgage you’ve got. If you have an interest-only deal, paying off £5,000 would save you £144 in interest over a year, which is less than the interest of £165 you would earn if you put £5,000 into your cash Isa.

However, if you have a repayment mortgage, paying off £5,000 would mean your monthly mortgage repayment would go down from £877 to £853 (assuming a 25-year term). So over a year you would save £288, which makes paying £5,000 off a repayment mortgage a better deal than investing in an Isa.

Virginia Wallis

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