Overpay mortgage like mad & work on pension later?

gadgetmind

Snakey wrote: »

The Telegraph was saying yesterday that higher rate tax relief might stop as early as next 6 April, although my personal opinion is that this is b0ll0cks as I don't see how all the supporting infrastructure can be put in place at such short notice.

Agreed. The implications for ending full tax relief on employers is huge, and it will effect DB just as much as DC, in fact probably more so.

As of April 2016, the £40k allowance is reduced for high earners, and I think that's as far as they can go until 2017.

atush

Snakey wrote: »

Even less if they give you an uplift for the employer NIC saving. I get 113.8 into my pension at a cost of 58. God knows how long I'd have to leave that 58 in a S&S ISA before it even got up to the initial 113.8 (although being taxed vs not taxed on the way out also needs to be considered, but then you are only taxed on 75% of it, but then the rules will probably change and there's also the lifetime allowance to consider... I normally stop thinking about it at around this time, before I implode).

and yes, such info would have been helpful but all more to the point to pay in more into pension surely?????? Not the mtg??? i am wondering why you are asking the question at all knowing this????



Dont worry about the rules going forwards. Pointless. At least 5 years before mr corbyn comes to stay?

Fill yer boots now, while ye may

Snakey

I'm not the OP . Myself, I put the maximum contributions in to my pension as priority, followed by a toss-up between ISA and mortgage. That wipes out all my spare cash so no more sophistication is required in my financial planning. I'm dreading the day when that might no longer be true and I'll have to actually think.

I do worry about the lifetime allowance and tax-free-ness of the lump sum, since those are the kind of things I imagine Labour would want to reduce even further and once you've put it in your pension you can't get it back out if hindsight makes a fool of you. I agree that assuming today's rules will even be vaguely relevant in 15+ years' time is daft, but you have to have somewhere to put your feet and I find myself basing it on "OK, suppose the rules stay on the same trajectory as currently i.e. things getting reduced/restricted/removed..." as a default.

racing_blue

Compounding works for you in a pension and against you in a mortgage. But the rate is likely to be higher in a pension. And there are tax breaks for paying into a pension. This means that paying into a pension is likely to trump overpaying mortgage in terms of the bottom line, I think.

Some good advice I got here, was that mortgage free is basically part of retirement planning. No need to rush unless you wish to retire soon.

Whereas with a pension, it helps to rush, because there will be more years for compound interest to work its magic. The illustration I like, is that someone aged 20 who pays into a pension for 15 years and then stops, will have a bigger pension at retirement than someone who pays into a pension from age 35 to 67.

I guess an exception would be if a mega-mortgage put you at risk of distress if interest rates rise, but with £2600 per month spare and a salary likely to double, that's not you.

I'm with Linton. Bit of both, but pension takes priority.

atush

Some good advice I got here, was that mortgage free is basically part of retirement planning. No need to rush unless you wish to retire soon.

Not exactly.

This is nore a function of current mtg rates (and your rate in particular) against the long term rate of 5% after inflation for equity growth in general.

So if rates are low like today, and lower than the above long term returns from equities in or out of pensions, then overpaying is not the thing,

But if the mtg rate was say, 12% (like in days gone by and hopefully not to return) then you would obv look to overpay.

It is always about comparing your outgoing mtg cost against expected long term returns. So isn't cut and dried for all occasions/time periods.

We are in a time period of very low borrowing costs, which amplifies the pay into pensions over paying off mtg scenario. wont always be as today though.

Thrugelmir

racing_blue wrote: »

Compounding works for you in a pension and against you in a mortgage.

In a mortgage compounding equally works in a positive manner.

The benefits of a lower mortgage outgoing/no mortgage scenario are useful if one were to suffer from a reduced household income. Not everyone enjoys the security of a guaranteed income throughout their working lives.

Sometimes a balance is the best approach to have. That is adjusted as current circumstances dictate.

dano17439

Its a great discussion point really, and I am in the same sort of boat.

Myself and my wife are currently over paying our mortgage by £1200+ a month. We are both 40% tax payers, both 40 years old. By over paying the mortgage, we should be free in 4 years.

The plan then is to ramp up our pension payments until we decide to retire. So potentially another 20 years of pension savings, added to our joint pots already which are currently circa 120k

If we didn't already have the 120k (yes I know its not too much, but better than 0), then we would be paying more into our pension rather than the mortgage, but I cannot think of anything better than owning our property outright so for us that is our priority and weve worked hard to potentially be mortgage free at 44, therefore giving us enough time to prepare for retirement

atush

the problem with being a HRTaxpayer is, that you are giving up an immediate 40% return on your money as every 100 inot a pension costs you only 60.

So really you should divert some of that 1200/m into pension NOW while you still get HR relief (which could be legislatedly reduced in future).

Dano if i were you, i'd rethink. WE were overpaying by a large amount too, but reduced it by half.

dano17439

I think you maybe right atush as ive a feeling that we will have to sort something out as were at a risk of losing child benefit this year if we don't make extra pension contributions

However as previously said in other posts, I would love the security of knowing that if we wanted to we could leave the 12 hour days of London behind and take a wage cut, we could work locally for a small, stress free wage, knowing that there is no mortgage payments to meet. If we dump 1200 pm into the pension now, we'll be working in London up to retirement age, which I couldn't think of anything worse

atush

Well like I said, you can do both.

We are still overpaying a bit, as we wanted to reduce the mtg term so the OH can retire earlier