paying off mortgage v pension plan?

scousedave

I have a £132000 mortgage paying £650 a month on interest only mortgage with 16 years to run...so far I haven't paid off anything on the mortgage but hope to change my hours at work so will be able to afford an overpayment monthly of £750
What Im wondering is if it would be more beneficial financially to pay this amount into a pension plan as the government pay in some too(not sure how much) but you are taxed on this when drawing from the plan.
Any thoughts please
Thank you

AnotherJoe

Several things.

1. How old are you? Because if for example you are 30, then your mortgage will finish when you are 46 and money you have locked away in a pension wont be available to pay it off until you are another 10 years older at least.

2. That is a very high interest rate. Thats about 6% which is astonishingly high. Even with high early repayment charges you will almost certainly be far better of remortgaging. Look at changing. Even a 3% interest on repayment mortgage would only be £200 more than you are paying now. 2a. Rest could go into a pension.

3. Its also probable a half way approach is better. Overpay a certain amount into (new, lower rate mortgage) rest into pension.

Depends on earnings, your employers pension scheme, your age.

dunstonh

Asking whether you should pay the mortgage or into a pension is a bit like asking whether you should pay the gas or electric bill. You should be paying both.

What Im wondering is if it would be more beneficial financially to pay this amount into a pension plan as the government pay in some too(not sure how much) but you are taxed on this when drawing from the plan.

And if you are employed, then the employer will pay into it too. Lots of free money.

There isnt enough detail here for anyone to say what you should do (a number of key facts missing). However, for most people, doing both is the right thing. In your case, the interest only part and only 16 years remaining is an issue in respect of affordability.

scousedave

A little more info is perhaps needed.
Im 47 bought the house in the boom years when I was with my ex and now on a 10 year fixed rate (3 years to finish the fixed rate) As a single dad have struggled getting enough work and being able to look after my children in the process but have just about scraped through...have about a 50k in my pension and 80k equity in my house.
Thank you

AnotherJoe

47 + 16 = 53 which gives you a problem if you put the intended money for mortgage repayment into a pension.

Could you get a better rate now? What is your early repayment charge?Because you may still be better off dumping that rate and getting a lower one.

scousedave

AnotherJoe wrote: »

47 + 16 = 53 which gives you a problem if you put the intended money for mortgage repayment into a pension.

Could you get a better rate now? What is your early repayment charge?Because you may still be better off dumping that rate and getting a lower one.

Id be 63 not 53 but I take on board your great advice however 8k to exit the mortgage.
Obviously will leave/remortgage once I can

justme111

So what are the penalties of coming out of that fixed rate ? Is there any product the same provider can offer that would wave those penalties ? What are best rates on the market for your ltv at present ? How much money would you save over the course of next 3 years if you taken a hit of early repayment charges ?
Issue of pension is more complicated and would need much more info, it looks like a gapping hole in your finances is an interest only mortgage at very high rate would need to be fixed or planned to be fixed so that you know what you have now and what u will have in the future in order to think about present and future expenditure and pensions.

justme111

Just done a quick search - Interest only mortgage at 2.5% would be about £250 a month which would mean about £15 000 saved in 3 years. 15-8=6. So are £6 better in your pocket or in bank's pocket ?
Obviously to plan for future you would convert to repayment mortgage rather than another interest only ; the above was writren only as an illustration. When you do you could be more certain about both the amount of money you could direct to pensions now and amount of money you could live with when retired

dunstonh

Equally, paying the mortgage down and finishing at 63, doenst give you much chance to provide for retirement. 50k in a pension at 47 is way behind where you need to be. So, you do have a number of shortfalls.

Where in the country are you? Is it an expensive area or cheap to live area? (of course, your name may give it away but you may have shipped out years ago)

AnotherJoe

scousedave wrote: »

Id be 63 not 53 but I take on board your great advice however 8k to exit the mortgage.
Obviously will leave/remortgage once I can

Oopsy my maths not up to even fail level this morning LOL.


Hmm, so that does make it possible to regard putting money in your pension to pay off the mortgage as long as the tax free lump sum is that large. Just another possibility.

justme111

dunstonh wrote: »

Equally, paying the mortgage down and finishing at 63, doenst give you much chance to provide for retirement. 50k in a pension at 47 is way behind where you need to be. So, you do have a number of shortfalls.

Where in the country are you? Is it an expensive area or cheap to live area? (of course, your name may give it away but you may have shipped out years ago)

He does not have to wait till mortgage is paid to provide for retirement. Once he got better mortgage he will be in a position to decide how much pension contributions it is reasonable to make and make them.