Thoughts on current standings

Zola.

Linton wrote: »

As long as your investment returns exceed your mortgage interest rate it makes sense to keep your repayments to the standard rate.

Our current rate is 3.09% with 3 years left on the deal before renegotiating.

I was thinking of over paying on the last 2 after our wedding and then when we renegotiate for hopefully a smaller % rate the next time...

Ultimately I need to keep evaluating my budgets and explore.

Once the wedding is done we'll have at least an extra £800 a month to work with thats not going in to a wedding fund.

If we have kids though... :rotfl:

Zola.

dunstonh wrote: »

Not really. You know your spending habits now. So, remove any that wont exist in retirement (e.g. mortgage). Keep the ones that you will still need to pay (electric, gas etc). Then consider that you will have a lot more free time and will likely spend more money in that period (so include an allowance for that). Remove or reduce any work related costs (eg petrol unless you plan to travel more).

This should give you an idea of the monthly budgeting your need. Then think about lump sum requirements. You are going to be alive around 35 years in retirement potentially. New boiler, multiple cars, lifestyle events that you cant fund from income etc.

So, you should end up with a lump sum and income figure in todays terms. Add a healthy amount on top of both as you are almost certainly underestimating what it will be (energy costs tend to go up by more than inflation for example) and there is your target figure in todays terms. You then set a monthly contribution to achieve the pension value needed to pay those things.

Good info, cheers!

jamesd

Zola. wrote: »

Our current rate is 3.09% with 3 years left on the deal before renegotiating.

I was thinking of over paying on the last 2 after our wedding and then when we renegotiate for hopefully a smaller % rate the next time..

It's worth getting your LTV down to 75% but beyond that you're likely to be better off going for a long term and investing. Ideal is repaying with a pension tax free lump sum, that effectively gives you tax relief on your mortgage capital repayment. Long term so you can do that for the maximum possible amount of the capital.

Since you get the great salary sacrifice deal pension contributions are probably best for you. If your OH isn't doing salary sacrifice then maybe S&S ISA for them. That's the repay early if rates go through the roof pot.

Zola.

I have a dream in my head of being mortgage free in my early 40s for some reason!

jamesd

But how much money are you prepared to lose to achieve it?

I could clear my own mortgage at any time. I don't because I would be worse off.

atush

Zola. wrote: »

I have a dream in my head of being mortgage free in my early 40s for some reason!

A lot of people have that dream. Problem is, it doesnt meant it is the right way to go?

You could always split you money, over pay a little and bump up both pension and S&S isa.

But if you get salary sacrifice, tht means an effective tax saving of 32%. So really means you should lean on the pension side of things.

Triumph13

The maths says don't repay the mortgage, but the psychology may not. The more immediate payoff from paying down the mortgage can be a much more effective incentive to save. It can help get you locked into a low spending pattern that then makes huge pension contributions later on easily achievable. Many people find it much harder to get that motivated to save hard when the payback (pension) seems so far in the future and would miss the buzz they get from seeing the mortgage shrink - we should all be trying to maximise happiness rather than wealth after all!
Congratulations to the clear headed and nerveless ones who can play the long game and end up richer that way, but personally I'm still very happy I paid my mortgage down.
Having said that, if I were starting again now I probably would be driven to push much more into the pension earlier just from the fear of all those lovely tax breaks being taken away...

Zola.

atush wrote: »

A lot of people have that dream. Problem is, it doesnt meant it is the right way to go?

You could always split you money, over pay a little and bump up both pension and S&S isa.

But if you get salary sacrifice, tht means an effective tax saving of 32%. So really means you should lean on the pension side of things.

Thanks for that.

I understand the basics of the salary sacrifice deal..... but after I am eligible to draw out 25% tax free, aren't I taxed on the rest of my pension? i.e. they get me in the end anyway?

Triumph13

Zola. wrote: »

Thanks for that.

I understand the basics of the salary sacrifice deal..... but after I am eligible to draw out 25% tax free, aren't I taxed on the rest of my pension? i.e. they get me in the end anyway?

Assuming 20% tax in retirement it goes £68 net from you gets you £100 in the pension which becomes £85 when you take it out (25% tax free and 75% taxed at 20%). That's a 25% return on your net investment, just from putting it in the pension wrapper. If you have unused personal allowance when you draw it out eg from retiring early then it's a 47% profit.

jamesd

Yes, the 75% is taxable income when you take it out. You don't have to take it out when you take the tax free part, you can leave it until you actually retire.

Continuing with the £68 paid in, you'd be able to take out £25 as a tax free lump sum, leaving £75 in the pot. If taxed at 20% that'd be worth £60 net. So £68 in, at least £85 out.

But that's assuming it's all taxed. You may start to draw it before state pension age and be able to get your whole personal allowance out tax free. And you may defer your state pension for a while to increase that and continue to take more out tax free. We routinely suggest that people do these things and more, like VCT buying, to get rid of the tax on the way out.