Balancing multiple goals 2 September 2017 at 8:44AM edited 2 September 2017 at 10:09AM in Mortgage-Free Wannabe 42 replies 5.1K views

Happier_Me

It is difficult to get the balance right and many will say overpaying a low interest mortgage with taxed income instead of paying into a pension is not making the best use of your money...but I undertsand the psycological benefits of reducing the mortgage balance and eventually being mortgage free.

In your position I would consider paying enough into pensions to remove yourself from higher rate tax (if you pay it and can afford it), calculate the income you want from 55 so you can work out the gaps in savings, try to save in such a way as to make the best use of your tax allowances during retirement.

And don't neglect your partners public sector scheme. I don't know what scheme she is in but the acturial reductions for taking this early can be brutal - I plan to save into a DC scheme to fund my earlier retirement years, delaying taking my public sector pension into my 60s. It's worth considering.

RichyRich

Hi HM. Some great thoughts. I hadn't thought about using the tax boundary as a lever to magnify the position before. Your suggestion would shift the current allocation %s significantly but I can see how it would produce an outcome where the money could be used more efficiently. A quick calculation indicates that it would involve roughly doubling my pension contributions so a complete rebalancing would be required. I will certainly give it some thought!

Madcatgirl

Hi - just wanted to say hi and you're doing well! I also use my pension contribution as well as childcare vouchers to take me under the higher rate tax threshold, but I'm just scraping it, so it's not too much of a problem.

We're paying nearly 4% interest in the final year of our five year fixed mortgage deal (which seemed a brilliant deal at the time) and now have more than 50% ltv and under £150k. However, we're still paying more per month than you! I can't wait to get a new deal. It makes no sense for us to keep anything more than emergency funds in cash (although I have a couple of grand in s&s ISAs) as the mortgage interest is so high.

My situation is pay off the mortgage as quickly as possible, both financially and psychologically. However, many in the FI community disagree with me!

RichyRich

October overpayment made: £726.88.

Going to be an expensive month as going on holiday, major watch repairs and the service charge accounts have just come through demanding an additional £300-odd.

These things are sent to try us. Let's see how we get on!

Poorlittletightgirl

Have you looked at what your LTV may be at the end of your fixed rate? May be worth trying to OP enough to get you into the next band and a better interest rate next time. Especially if interest rates are set to rise.

RichyRich

Hi Poorlittletightgirl

Yes, we're already in Nationwide's lowest LTV bucket (according to the desktop valuation they did when switching products) but you're quite right - at the end of the two years (of which we have 18 months to go) ideally I'd like to be under 50%.

RichyRich

It looks like I've neglected my diary...but I haven't neglected my overpayments! Balance as at today's date is £210,587.35 which means that next month we will be under £210k which I'm counting as a mini milestone.

Since October every monthly overpayment has been at least £710 which I think is fairly good going. I'm waiting for my 2018 salary to settle down (I get paid bonus in two parts so I won't know what my new salary with pay rise and adjusted pension contributions, which I've increased, will look like until April's payday) but after that I'm considering upping the monthly overpayment to around the £900 mark to get a bit more traction on it. Depending on new monthly take-home pay, of course.

Elsewhere been a bit of a financial disaster with additional legal fees to pay (awaiting final bill), an enormous service charge increase (challenge prepared), a ridiculously extravagant holiday booked (but not fully paid for yet) but I'm keeping pension payments and mortgage overpayments sacrosanct. I still haven't figured out what to do with the two Bank of Scotland accounts I'll effectively lose when the Tesco DD wheeze disappears, though I think I'll probably use one to pay off the holiday and move the other into investments.

Another day, another chip off the mortgage. Onwards and upwards!

RichyRich

Chip, Chip, Chip. Today's mortgage balance is £209,241.60 following an overpayment of £755.72. I'm getting impatient to see it below £200k now. My wife and I discussed and provided that my salary settles to somewhere we can accommodate it we are going to up our overpayments by between £200 and £400 more per month between us.

My other finances have taken a bit of a battering having just paid off our ridiculously extravagant holiday for August and my stocks and shares ISA taking the rough and tumble of the stock market but they should be repaired fairly soon. I'm going to try to keep my BoS accounts alive by shifting some direct debits since the Tesco way will be gone after this month. Seems a shame to lose out on 2% on up to £10k (currently £4k only, and dropping to 1.5% soon I believe).

At this rate I'd be disappointed if we couldn't get the mortgage to sub £200k by year end which should put us in a great position when we come to remortgage next May, but who knows what will happen between now and then? All we can do is keep trying to go in the right direction.

Good luck everyone and keep up the good work!

lixi

Similar quandary here on whether/how much to overpay on the mortgage and how to couple that with other investments and pension provision. It can be difficult to not be blinkered by the need to feel like the mortgage needs to go ASAP as I hate debt in particular. As OH and I approach the big 4 0 we are leaning more towards chucking more funds at the pension to get higher rate relief.

RichyRich

Yes, I upped my pension contributions this year to 12% of my salary. With each pound paid in costing less than 60p (I contribute by salary sacrifice) it's very tempting to do that rather than overpay the mortgage or save in an ISA/savings account. The only reservation I have is that I won't be able to touch it until I'm 55 (or whatever age a future govt might decide) which is what stopped me upping it by any more.