Additional pension vs mortgage overpayments.

Alexland

westv wrote: »

10% maximum mortgage overpayments are normally based on the original loan amount.

I don't think there is a 'normal' so people should always check their mortgage terms. When I used to max overpay it was based on 10% of the balance at the start of each calendar year.

Alex

Sir_Stanley_Hubris

Thanks Ginger. You're spot on, the £500 monthly overpayment is based on previous history - I've recently remortgaged which kicks in from 1st April so from that date my annual overpayment limit is 10% of the opening balance for that year (so £5800 March 19 - Feb 20). Previous overpayments have brought my monthly payment down from £700 to the new one of £540 (in round numbers) so I was going to add the £160 a month difference in old vs new payments to the overpayments - when any given years OP was reached I was going to save the rest to overpay a lump sum at the end of the 3 year fix.

I guess I'm risk averse - the bit about pension pots 'may go down' concerns me - GingerJims comment that there is a psychological benefit to being mortgage free strikes a chord and I guess I'm prepared to pay for that benefit (by losing out on some pension growth at the expense of becoming mortgage free earlier) - the question is how much am I prepared to pay? I'm not sure what the answer is to that question!

Peelerfart

It would perhaps be interesting to post the same question on the mortgage free wannabe board?

See what responses you get there. This question has been asked before,though everyone's circumstances and preference are different.

Purely personally, i overpaid my mortgage.

GingerJim

Sir_Stanley_Hubris wrote: »

I guess I'm risk averse - the bit about pension pots 'may go down' concerns me - GingerJims comment that there is a psychological benefit to being mortgage free strikes a chord and I guess I'm prepared to pay for that benefit (by losing out on some pension growth at the expense of becoming mortgage free earlier) - the question is how much am I prepared to pay? I'm not sure what the answer is to that question!

I am in this category too. My current plan is to be mortgage free by 50 by making suitable overpayments. That then gives me 10-15 years to put aside the same amount of money into ISAs and other saving schemes as I think I'm probably already maxed out with pensions and can't face tax bills there.

£20,000 is a lot of money though to effectively "throw away". If you worry that 62 is too old to become mortgage free, but at content with 60, maybe re-do the maths and see what happens if you aim for mortgage free by 61. In fact I'll have a quick go.

GingerJim

This post has been edited by the author as the maths was flawed...! Oops

Sir_Stanley_Hubris

Thanks Jim, If I'm right though (and please correct me if I'm not it's not £25k though? That figure was based on me saving £300 a month from age 55 - 62 to leave me mortgage free at 62. However if I use that money to overpay mortgage instead then that'll be paid off by the time I'm 60 leaving me 2 years of no mortgage payments - if I save my usual mortgage payment and my overpayment money (£540 + £660) then that's £28800. Nett result is I can be mortgage free at age 62 with either £25200 in the bank (plus interest on ISA or pension growth if I invest it that way) or £28800 in the bank if I save from age 60.

Hope that all makes sense! (we cross post so these comments are in relation to your earlier post, not your most recent one)

GingerJim

Sir_Stanley_Hubris wrote: »

Thanks Jim, If I'm right though (and please correct me if I'm not it's not £25k though? )

You are absolutely correct. I forgot to factor in your earning post being mortgage free....

This is why it's always best to do the maths yourself and not rely on a stranger on the internet

davidquizer

Hi, I was overpaying my mortgage for many years too and paid it off last November. I've been retired now for 3 years and like you wanted to be mortgage free in retirement. I did invest quite a bit in pensions as well as overpaying my mortgage. I felt both were important. By overpaying or paying off your mortgage early ( in my case by 14 years) you save yourself a fortune in interest. So, I think both are important and I don't regret not focusing on just the one way of overpaying. Mind you I was lucky in that many years ago I was a financial advisor and you always think money!

atush

It would perhaps be interesting to post the same question on the mortgage free wannabe board?

Dont bother, no one there does the maths that paying into pension is better.