Overpay on Pension or Mortgage?

carl310166

This may be a simple or very difficult question to answer,but i would like some advice please.

In approx April 2006,i should have an spare £600-700 per month.

Six months ago,i would have wasted it on the lastest consumer product,but having discovered MSE,i would like to prepare for secure a decent financial future.

The question is basically,do i overpay on my mortgage......pay extra AVC's or both in any particular order?

From April 2006,i believe you can contribute up 100% of your salary towards AVC's.

Our details are,

Both myself and my wife are 40.

We both have works penions (been paying since we started work 20+ years ago).

We have 17 years left on our 77k mortgage.

I know this is very complicated,but there must be forum members who are in the same situation.

I will be posting this in the Mortgage forum

Any advice would be very greatfully received.

DavidLaGuardia

Paying into your mortgage is effectively the same as putting into any savings or investment that gives you an an annual equivalent return that is the same as the cost of the mortgage. If your mortgage rate was 5% this would need to be 5.12% (slightly higher as you are charged 5%/12 each month on the mortgage which would roll up in an investment)
As pointed out on many facets of this board, a pension tends to be favourable as it attracts tax relief enhancing what you actually pay into it (especially if you are a higher rate tax payer)
Having said all that, you should also make sure that your mortgage is on track to be paid of by the time you retire as you do no want to have such outgoings absorbing the retirment income you have built up.
A counter agument to the above, is to buy the maximum valued property with the maximum mortgage possible thus "gearing" up future gains in property values and then downsize at retirement with a lump sum, although this risk everything on future property increases AND puts all your eggs in one basket
It will be interesting how the rules in 2006 will pan out that will allow yo u to invest in residential property via a pension making a compbination of such ideas possible.

carl310166

I have just read The Automatic Millionare,and the tax benefits of pension contributions seem unmissable!,but i do worry about things going wrong,even though both our pensions are Government ones.

A reply i received from the Mortgage board suggested not to "put all my eggs in one basket" which is probably good advice.

But free money from my Employer and the Government sounds good to me!

dunstonh

responded on your duplicate post in the mortgage forum.