Overpay on Mortgage or continue paying into pension?

dunstonh

How much bigger? Would a return of 7% (taxable) be worth losing all your capital for, if the ISA paid a return of 5% tax free?

Seeing as you didnt pay in 20% to begin with and took 25% out at the end then its not all of your capital you are losing. Plus, if the income is higher, then you are getting more and dont not to erode your other savings/investments.

DiggerUK

Rich 1976,
A mortgage is a debt. Debts have to be paid. Having savings, pension and investment plans is a cart and horse situation. Pay off your debts. Debts on which you are paying interest.

Given the current economic climate, plus the knowledge that this will happen again some day, just figure out how you will pay the mortgage if your income drops or even disappears. Don't say it can't happen to you.

Prioritise the roof over your head. If that is safe and secure you are virtually bomb proof.

Best of fortune.

Perfect_Choice

Fully agree, I paid my mortgage off early, there is nothing beating that peace of mind in knowing you can keep your home if you lose your job. Once paid off then focusing on the pension is clearly the priority.

However the caveat I would say is it really depends how long you have before retirement. I paid off my mortgage when I was 46 (now 48) so I have plenty of time to increase my pension contributions before I retire. If I was 56 instead, then the issue may have been different but having a mortgage at 56 would have been an issue as well, so take your choice.

DD4

Out of interest, if you lost your job how would you pay for food, clothing, council tax, electricity gas and water bills, house insurances, life assurance, TV license, telephone bills, internet, PENSION, etc, etc?

I ask because my mortgage repayments represent the largest monthly bill in my household payments (though reducing all the time), but it represents a small amount of my total monthly outgoings.

marklv

DD4 wrote: »

Out of interest, if you lost your job how would you pay for food, clothing, council tax, electricity gas and water bills, house insurances, life assurance, TV license, telephone bills, internet, PENSION, etc, etc?

I ask because my mortgage repayments represent the largest monthly bill in my household payments (though reducing all the time), but it represents a small amount of my total monthly outgoings.

This is why you need ample savings - or at least redundancy insurance.

marklv

Perfect_Choice wrote: »

Fully agree, I paid my mortgage off early, there is nothing beating that peace of mind in knowing you can keep your home if you lose your job. Once paid off then focusing on the pension is clearly the priority.

However the caveat I would say is it really depends how long you have before retirement. I paid off my mortgage when I was 46 (now 48) so I have plenty of time to increase my pension contributions before I retire. If I was 56 instead, then the issue may have been different but having a mortgage at 56 would have been an issue as well, so take your choice.

People's lives are so different, though. I only started a mortgage at age 38, so at 42 I can hardly think of paying it off yet! For me it's a non-issue - the priority is saving for retirement. Once I am in my mid/late 50s then I will start to overpay and clear the mortgage a few years early.

marklv

DiggerUK wrote: »

Rich 1976,
A mortgage is a debt. Debts have to be paid. Having savings, pension and investment plans is a cart and horse situation. Pay off your debts. Debts on which you are paying interest.

Given the current economic climate, plus the knowledge that this will happen again some day, just figure out how you will pay the mortgage if your income drops or even disappears. Don't say it can't happen to you.

Prioritise the roof over your head. If that is safe and secure you are virtually bomb proof.

Best of fortune.

A mortgage is a debt, but not just any debt - it's a long term financial commitment. If you weren't paying a mortgage you would paying rent, so you would still be paying in order to keep a roof over your head. Paying off the mortgage should not be a top priority; unfortunately people's first reaction is emotional: get rid of debts. But it's often much better to invest any spare cash instead, while there is still time for the investments to grow. A mortgage can be managed, so there is no need to clear it as soon as possible.

DiggerUK

marklv wrote: »

A mortgage is a debt, but not just any debt - it's a long term financial commitment. .

Spin a mortgage as a "long term financial commitment" all you like, it's still money owed. Money owed has to be paid back. That's a debt which ever way you cut the cake.

Debts take away control over your life. With a secure roof over your head you have that roof for ever, you have a base to move on from. You have security.

Surviving in a mortgage free house on baked beans and the Big Issue is not everybody's goal in life.
Then ask a Big Issue seller if they prefer baked beans and no house.

shop-to-drop

dunstonh wrote: »

...plus pension contributions can increase working/childrens tax credits as they lower your income resulting in greater tax credits. The theoretical maximum benefit of tax relief and tax credits can add up to effect tax relief of 72%. Ignoring growth, if you took back 25% at the end, then the income has only cost you 3%. Most people are not going to be able to get 72% (as that needs the care element of tax credits) but the lower income will benefit many.

Can anyone confirm this please?

If I remember correctly when claiming CTC I gave gross income (pre tax and pension payments) so how can pension contributions increase tax credits as they don't even know the amount of pension paid?

I would be very interested to find this out as we are planning to make additional pension contributions as hubby is in 40% bracket and our CTC for this year was reduced to the minimum amount halved from around £10 per week to around £5 a week due to a small amount of additional income.

Thanks in advance.

marklv

DiggerUK wrote: »

Spin a mortgage as a "long term financial commitment" all you like, it's still money owed. Money owed has to be paid back. That's a debt which ever way you cut the cake.

Debts take away control over your life. With a secure roof over your head you have that roof for ever, you have a base to move on from. You have security.

Surviving in a mortgage free house on baked beans and the Big Issue is not everybody's goal in life.
Then ask a Big Issue seller if they prefer baked beans and no house.

I am in agreement that it is desirable to pay off a mortgage, but my point is that putting your entire financial effort into this one goal is a waste of resources. Nobody forces you to buy a house - you can always rent, as many people do on the continent. Property ownership isn't right for everyone.