Pension or Mortgage Repayment

MayHeart

Hi,

I have an Interest Only mortgage and I am high rate tax payer without a pension.

I have £5k surplus cash in the bank at the moment.

Financially would it be better for me to pay off £5k of my mortgage or invest this £5k in a stakeholder pension?

Thanks

Lokolo

Well personally - the pension. You will get higher rate tax relief, so £5k will turn into £8,333 but you won't be able to access it until retirement age.

However depending on your age, an interest only mortgage and no pension means you should really start re-thinking finances in your life.

phil.s_3

prob pension, automatically get 20% tax relief and have to complete self assessment for the rest.

dunstonh

In life you get many bills. Gas, Electric,Water for example. You also have bills such as repaying your debt and also contributing towards your retirement.

Currently you are not paying your debt. You are also not paying towards your retirement. So, overall is sounds like a poor state of affairs. You are effectively asking us should you pay your gas bill or your electric bill when in reality most people pay both.

opinions4u

You don't tell us the rate on your mortgage.

You don't tell us if your employer would match any pension contributions.

But you probably need to do both.

You also need to assess what you're doing with your income and cut back somewhere to ensure that you can move on to a repayment mortgage and make a worthwhile monthly contribution, benefiting from 40% tax relief, to your pension.

So while it's possible that what you do with the £5k is as broad as its long, what you do with your income for the rest of your working life is probably much more important in the great scheme of things.

jamesd

Since you need both to pay off the mortgage and to have a pension it can make sense to combine them. So pension contributions then at age 55 you can consider using the pension lump sum to do some of the mortgage clearing. The remaining 75% can be left in the pension for later.

You don't need to join self-assessment to get the higher rate tax relief. Just tell HMRC the amount of pension contribution made after the 25% is added for basic rate tax relief. They will increase your basic rate tax band and you'll get the higher rate part of the tax relief by paying higher rate tax on less of your income.