My partner & I have just remortgaged, and have taken a + 0.79% offset tracker with First Direct. We have an interest only mortgage of £53k over 17 years on a property worth c. £150k. Currently we can afford around £300 per month after all bills and the mortgage is paid for our repayment fund. My question is, would it be more beneficial to put the £300 into the First Direct account, to offset against the mortgage, or would we be better off by saving it in a cash ISA (again with First Direct coincidentally) which pays an introductory 7% for the first year.

It appears to me that by offsetting against the mortgage, we would effectively be getting 5.29% as opposed to the 7% that the ISA would return. I am far from an expert though, and suspect there may be some tax element for the offset case that I'm missing, any informed insight would be very gratefully received.

Hi,

The sums in this case are prettystraight forward, and at the outset it does look like the ISA would be better. However, my main concern is that you're not reducing your debt level at all by being on interest only, and the difefrence no the gain between 5.29% and 7% on £300pm is marginal. You may find that reducing your mortgage debt by offsetting gives you more peace of mind whilst giving you easy access to your cash.

Brian

Thanks for taking the time to reply. We are going to set up a regular over-payment of £80 per month into the mortgage account to keep us on track to finish on time, and offset the remainder of the £300. Peace of mind won the day.