Katie Horne, banks relationship manager at Flagstone, said: “When it comes to long term financial planning, most of us believe that we have to make a choice: either overpay our mortgage or build up our savings.
“In reality, that decision isn’t as stark as it seems – particularly when your savings are held in a tax-free Cash ISA.
“According to Flagstone research, mortgage holders who use the interest they earn on carefully managed savings to increase their monthly mortgage payments can repay their mortgage two years faster without eroding their savings pot.
“Even relatively modest mortgage overpayments, when made consistently, can significantly reduce both the term and total interest paid.
“Using savings interest to fund those overpayments allows borrowers to do this without eroding their financial safety net.
“Using the interest you earn on tax-free savings to overpay your mortgage can have a hugely positive impact on practically anyone who doesn’t want to whittle away their savings, but also would love to see off their mortgage that bit faster.
“This approach works particularly well with anyone who has ‘rainy day’ funds ready to use at a moment’s notice, and then has amassed an additional pile of savings that they know they won’t need to dip into and are happy to put to work for a number of years.
“For most people, a mortgage is the largest debt they will ever carry.
“Knowing that you are going above and beyond to chip away at it and free yourself from the burden of debt that bit sooner can be hugely motivating and a psychological boost.
“Consistent overpayments that shorten the term by even a year or two could potentially bring forward retirement plans or reduce financial pressure later in life.”
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