Debt vs Savings vs Pension

Pincher

In a high inflation environment, £100 you overpay now, is not the same as £100 interest you save in 20 years time. High inflation implies high return, so it's probably best to not overpay if you anticipate a high inflation future.

The dream is, a £500k mortgage fixed for 5 years at 2.5%, then inflation goes up, and BOE rate goes up to 6%. and you get 5% interest for four years on the money you don't overpay.

If you expect low inflation in the long term, I would overpay, because the interest you save in ten years time is worth a lot.

A one dimensional view based on one criterion.

justme111

Re pension figures - why don't you assume the same growth figures as you do with yr ISA to get an idea of what is it going to be worth? I would say yr split looks great and you look well placed in financial terms.

Superscrooge

When mortgage rates were much higher (mine hit 12% in 1990) it definitely made sense to make overpayments on your mortgage. I made overpayments and I can remember the elation when I finally paid it off many years early.

However as others have said. If you can earn more by investing the money than it is costing in mortgage interest, it makes sense to invest the money. Mortgage rates are lower now than they have ever been.

Whether to invest in Pensions or ISA's very much depends on personal circumstances. If you have a pension scheme where your employer matches your pension contributions then this is effectively free money, on top of the tax benefits of pension contributions. But the downside of pensions is that you can't access them until at least 55yrs.

With an ISA you have the advantage of easier access to your funds. So if you decided to invest in an ISA then later wanted to make a lump sum payment off your mortgage this would be possible.

One thing you haven't mentioned, unless I missed it in one of your posts, is whether you have a variable rate mortgage or a long term fix?

Derboy

Superscrooge wrote: »

When mortgage rates were much higher (mine hit 12% in 1990) it definitely made sense to make overpayments on your mortgage. I made overpayments and I can remember the elation when I finally paid it off many years early.

However as others have said. If you can earn more by investing the money than it is costing in mortgage interest, it makes sense to invest the money. Mortgage rates are lower now than they have ever been.

Whether to invest in Pensions or ISA's very much depends on personal circumstances. If you have a pension scheme where your employer matches your pension contributions then this is effectively free money, on top of the tax benefits of pension contributions. But the downside of pensions is that you can't access them until at least 55yrs.

With an ISA you have the advantage of easier access to your funds. So if you decided to invest in an ISA then later wanted to make a lump sum payment off your mortgage this would be possible.

One thing you haven't mentioned, unless I missed it in one of your posts, is whether you have a variable rate mortgage or a long term fix?

Mortgage is 2yr fixed rate on the basis of shopping around every couple years to get the best deal.

Thank you all for your different viewpoints and advice :beer:

justme111

Fixed rates usually don't allow overpayments ..

Derboy

That's not my experience and I've had them for 9 years. 10% of mortgage balance per year max without incurring any repayment charges.

justme111

Ah. Indeed. Apologies. I used to dismiss fixed as restrictive but when put in numbers 10% is more than enough

Thrugelmir

Where are you investing via the S&S ISA. There have been a considerable number of dividend cuts amongst UK listed stocks this year already. Next year likely to be more. As the oil majors suffer the same woes as the miners.

Don't chase yield for incomes sake. Mortgage overpayments at least give you certainty of return, i.e. reduced debt. Other investments may return a capital loss.

What's you current mortgage interest rate?

Derboy

Thrugelmir wrote: »

Where are you investing via the S&S ISA. There have been a considerable number of dividend cuts amongst UK listed stocks this year already. Next year likely to be more. As the oil majors suffer the same woes as the miners.

Don't chase yield for incomes sake. Mortgage overpayments at least give you certainty of return, i.e. reduced debt. Other investments may return a capital loss.

What's you current mortgage interest rate?

Very valid point. Looking at my past 2 ISA statements, the return was 8.xx% in the first 6 months but then -3.54% in the last six months. To be honest I look at any overall yield as a bonus. I'm more concerned with making sure that the prinicple pot doesn't reduce. The ISA is with RBS.

Mortgage rate is 2.25% fixed for 2 years. Doesn't actually start till March when we move in.

jimjames

Derboy wrote: »

Very valid point. Looking at my past 2 ISA statements, the return was 8.xx% in the first 6 months but then -3.54% in the last six months. To be honest I look at any overall yield as a bonus. I'm more concerned with making sure that the prinicple pot doesn't reduce. The ISA is with RBS.

Mortgage rate is 2.25% fixed for 2 years. Doesn't actually start till March when we move in.

To be honest, the first thing I'd address would be the ISA provider before looking at amounts. I don't recall rbs being mentioned anywhere for their S&S ISAs so you may want to review what you're paying into as a more urgent issue.

What fess are they charging and which funds are you invested in?