Is it worth overpaying mortgage by £30k at 6% fee with 9 yrs left fixed

ThinkingOutLoud_2

Fezzington wrote: »

Thanks to everyone for their replies! Regarding the questions above: I'm 29, she's 27. With bonuses we both sneak into the 40% tax bracket ~£40k. ...

I hadn't thought about my pension, but I inquired at work and i'm on the lowest 1% pay-in, so that's certainly something I can bump up - thanks for the suggestion. Anyone know what a good % is to pay to your pension?
...
We have no rainy day fund, and I agree with those who mentioned it that we should have 5k or more easy-access funds should we have unexpected outgoings or job loss.
I will have a read through the threads about investments and see what I can learn.

Good on you.

So I am going to leave it to the pension gurus to chip in - other than to say as 40% tax payers paying in only 1% - that absolutely is something to consider. You should look into if you pension is salary sacrifice as this has even better advantages for NI.

And, yes an emergency fund is pretty much a peace of mind thing like having life insurance for your respective halves of the mortgage.

dunstonh

I hadn't thought about my pension, but I inquired at work and i'm on the lowest 1% pay-in, so that's certainly something I can bump up - thanks for the suggestion. Anyone know what a good % is to pay to your pension?

A pension is just a fund you build up for you to spend in later life. The more in that fund, the more you have to spend or the earlier you can afford to retire. So, there is no fixed rule on percentage.

However, as a rough guide to ballpark, you are looking typically at half your age as the percentage that should be going in. This includes employer contribution and is gross, not net.. So, if we say age 28, you should be looking at around 14% gross. If employer is paying 1%, then you need to pay 13%.

getmore4less

You have to factor in the annual over payment fee free.

You can't use 6%/9 for all the money

In a year you get another fee free payment so that is up against a 6% fee for one year. Year 2 overpayment is 6% over 2y etc.

Then you have your normal surplus from income to work with.

It might also be worth considering reduced term to increase normal payments if you cant find enough places to put the money on a better rate.

Living within your 40% and pension your pay rises till ready to up your debt and review is a reasonable long term plan if you won't need that cash.

getmore4less

Pension is one element of retirement planning debt free and a paid for house are also useful. Other income sources are useful.

In todays money to generate £40k a year £1m is not too bad a guess for how big your asset pot needs to be(and a house).
Sooner you start the sooner you get there.

dunstonh

Forgot to mention that as you are higher rate taxpayers, the actual cost to you for every £100 you pay into the pension is £60. An overnight gain of £40. So, that percentage needing to pay of 13% is actually a net cost of 7.8% of salary. The rest is made up with tax relief.

That is why overpaying a mortgage whilst you are a higher rate taxpayer can be a bad thing (in reality a bit of everything is usually best but overpaying the mortgage whilst not doing not enough on the pension is usually bad planning)

somethingcorporate

You need to be more specific on your earnings. Basic rate starts at £43k assuming a standard tax code.

Harryp_24

Put it all in a savings account and overpay by the max each year, you'll need the money at some point and you'll be gutted taking out a loan while the money sits in the building society

Harryp_24

Also you shouldn't be on higher tax rate with a 1% pension

chelseablue

I'm not in the higher tax bracket yet, yearly salary is £35k

I pay 5% into my pension, when my son goes to school and we're not paying out for nursery fees any more I'll up it to 10%.

Employer pays in 5% so that'll be 15% of my salary going in.
I'm 33

Fezzington

somethingcorporate wrote: »

You need to be more specific on your earnings. Basic rate starts at £43k assuming a standard tax code.

Her tax code is different as she has a company car. Mine is basic pay £37k with quite a variable bonus (~0-15k) depending on company performance, so i'm only just sneaking into higher rate tax.

From a quick read of the investments it seems like a Stocks & Shares ISA is the way to go, and in a nice position that I can invest half my money in March, and the second half in April under the new tax year.

It looks like previous years would've been nicer to jump into a S&S ISA and people are advising against it with the FTSE expected to go down soon. Anyway, I won't go on about that as it's a discussion for another Forum.

I've chosen to pay in 9% to my pension, since there was no right answer I went with what felt like a decent sum per month.

Thanks to ALL who contributed and helped me sort my finances out (and responded so quickly!). I feel in a much better position having heard all your thoughts.