Mortgage Overpayment or Pension pot Lump Sum pay off

stulish1

Hi all i have been paying £200 per month extra off the morgate and am just in the process of changing my morgate for a better rate that will save me nearly another £200 per month.

I initially thought i should just pay £400 extra per month off the morgage, but then i thought i would pay the extra into my pension so i would be paying approx £666 per month extra into my pension (as i am in the 40% tax bracket), with a view to taking the the tax free lump when i retire in 14 years at 60.

this equates to approx £111,888 (666*12*14), in 14 years my Mortage should only have about £71,000 remaining so i wouldn't need to take all of the £111,888.

my question to everyone is, does this seem like the better option, my thoughts were that i am saving the 40% tax and also the national insurance contribution for the sake of 1.54% interest (for the 5 years fixed term at least).

Your thoughts would be welcome.

Regards

Stu

Thrugelmir

How secure is your employment?

Only 25% of the "£111,888" is tax free. The remainder is potentially taxable and subject to the prevailing rates at the time depending upon your circumstances.

What are proposing investing in? If the markets were to drop 30% shortly before you intend repaying the mortgage. What's your plan then?

Could you obtain a better mortgage rate quicker in the future if you were to overpay, ie, by virtue of having a better LTV.

One option could be to fund the pension for 5 years then review the situation taking into account your circumstances at the time. Alternatively both overpay and contribute to the pension. Thereby allowing yourself flexibility.

There's no right or wrong answer. More a question of how much of a risk you are prepared to take.

stulish1

The 666 I would pay in, is on top of my contribution and my employers contribution witch is about 1500 per month.

The employment is pretty secure also.

Regards

Stu