Capital amounts mean nothing, its all about the interest rate. Savings account are indeed garbage. If you look around, you can easily beat mortgage interest rates with an ISA. Especialy The OP's small rate. As i said above, i pay massive overpayments into my mortgage, simply cos when i bought the house i budgeted a 6% rate, so have essentially created my own fixed mortage by paying 6%, while the real rates can fluctuate below that. I'm just pointing out that matematically and financially, provded you can get an ISA with a better rate you ARE better off not overpaying. However, as you point out above, there are non financial benefits aswell. FYI I know exactly what i am doing with regards to my mortgage and debts, i specificaly chose a lifetime tracker mortgage at 0.85% above base rate, with zero arrangement fees, zero overpayment limits and zero redemption fees. I also absolutely love credit cards, why pay out all the cash straight away for something when you can conveniently have 0% for 12months
... in theory you can make more on investments, but there's risk attached, and there's nothing like owning your home to the point where nobody can take it from you. If your circumstances changed you'd have a lot more flexibility to work part time, go self employed, etc, if you only have a small mortgage. I'd love to pay my mortgage down to almost nothing... then I'd buy another property at the same terms, by pulling cash back out of the first mortgage (which is at a far better rate than I'd get on a new one). No need for any fees, as I'm just taking money out of the flexible mortgage. Interest rates will eventually go back up, but it'll probably be a few years before they're back up at the 5-6% level. I regard myself as lucky that I'm still employed while lots of people are losing their jobs, so it's better to pay off the mortgage while I can.
It does involve both interest rates and capital amounts. If you have no capital due you will not be paying any interest on it. But as you say, the interest rates need to be working for you rather than against. Something which can be hard to arrange when folks are tied into fixed rate and tracker deals. Different lifestyles choices will also be a factor to take account of too. If one chooses to play the long grey, boring, career / commuting game, that is one thing, or just drop in and out the whole mortgage game in a short space of time is another choice. I chose a 5 years programme. Now I am effectively retired and have been since I was 35 years old. I only paid something like 3500 overall interest on my mortgage by choosing to pay more each month and also dumping in lump sums too. Something I checked was possible before committing to a specific mortgage type and lender. A mutual lender too so I did not have to pay share holders anything.
I'm with the Britannia(now part of the co-op), and get a divi payout for just having a mortgage with them!
