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Loan overpayments &#39better than Isas&#39 for savers

Making overpayments into a mortgage is a better savings option for cautious investors than putting money in an equity-based Isa, according to Virgin One.

A savings study by Virgin compares what returns can be achieved from both options. It identifies three types of saver and what they should look for in an investment.

According to its calculations, overpaying £50 a month into a 25-year mortgage at an interest rate of 5.2 per cent saves the borrower £12,058 in interest and allows them to pay off the mortgage in 20 years and three months.

It compares this with putting £50 a month in an Isa at an interest rate of 5 per cent, which it says would make the investor £5,394.

Virgin classifies the most cautious types of investors as “Safe Sams” and says they should take a risk-free approach by overpaying on their mortgage and completely avoiding equity-based Isas.

It says the second group of investors, called “Steady Eddies”, have a neutral attitude to risk and want some exposure to equities offset with an element of security. It recommends they put half their available savings in an Isa and half in a mortgage.

The third category it identifies are the risk-loving investors or “Vegas Vics” who it describes as gamblers. It recommends they save at least 20 per cent in a mortgage to protect against risk.

Marketing manager Scott Mowbray says: “As we near the end of the current tax year and thoughts turn to investing any free cash, it is important that people recognise all the savings opportunities available to them.”

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