Pocket Poor

Pocket_poor

Hi Lexington

Thanks for posting.

It’s great to hear other people’s stories and financial goals, as you say, it provides much needed motivation.

We also can overpay by 10% and we don’t have much left to pay before we hit the threshold so will have to direct our money into a savings account.

So best do my homework and see where is best to squirrel away our money.

Pocket Poor X

mark55man

AnotherJoe wrote: »

Sounds like a poor plan. If you can pay that much off hubbie must be a high rate tax payer in which case you are losing thousands, possibly tens of thousands, of pounds in tax relief that may not be available in a few years time.

Hi Pocket Poor - thanks for an interesting thread, which has stimulated some thoughts, so sorry for a little hi jacking, but I hope you find this interesting, although I suspect it wont convince you

Thanks also AnotherJoe for helping me do some tweaking which wont help in the short term but may help me later

I did some spreadsheeting and overpaying in 2 years would be about £15K over-payment assuming a few things eg 2% interest and 5 years left on normal term. If either is higher or lower it will change the numbers below but the point is still good. Also assuming you or your OH are Higher rate taxpayers and assuming no fees and no growth - which is severely pessimistic

If you paid off the mortgage approx £25K a year (£15K overpayment) you would end year 2 with no mortgage and no additional pension. At the end of 5 years (assuming you then put all mortgage and mortgage overpayments into your pension) you would have no mortgage and £125K pension =3*£25K grossed up for HRT relief).

If you paid off the mortgage at £10K a year - you would end year 2 with £30.5K mortgage and if you the used the £15K for pension payments you would have £50K pension (= 2 * £15K grossed up for HRT rebate). At the end of 5 years you would be mortgage free and have £125K pension (5*15K grossed up).

So that looks like it isn't a big deal, except if as Joe suggests HR Tax relief on pensions is going to go then the longer you leave it you are at risk of losing some of those tax reliefs. I personally don't think the current government will stop that. Additionally at the £25K amount you are (when grossed up) literally at the limit of the government allows tax relief on so it may not be possible to get relief on it all at £25K when it is possible at £15K given you may have other arrangements as well

Another key point is that the money you put into the pension (which is just a tax wrapper) will need to be invested which is scary but doable - the most cautious investors reckon that you can achieve 4% return a year reliably and if you factor that in then you would be £5K worse off by overpaying as the early money would be working for longer and would exceed the return on mortgage interest

Finally depending on the matching rules of your employment schemes money spent on the mortgage might deprive you of employer contributions in my work £15K would get me the max contribution of 10% of salary so 2 years of £0 and 3 years of £25K would get me total of 30% of salary over 5 years, whereas 5 years at £15K would get me 50% of salary in total.

However the drawback is you would have this extra money but it would be within your pension fund (widely regarded as most tax efficient for HRT) but it would be locked away until 55 which some people see as a bad thing. Personally I would rather have more money later than less money now.

Anyway hope this is thought provoking in return and happy to have any comments on the numbers or the strategy

Pocket_poor

Hi mark88man

Thanks for taking the time to crunch some numbers!

Me and Hubby have had pensions since we were 17, so this is an area of our finances we are not ignoring. I see your point but we are sticking to our plan of clearing the mortgage by May ‘22.

That will give us a good 20 years (fingers crossed) to ramp up our pensions for retirement.

Pocket Poor X

mark55man

Given that we are only talking a small number of years that you are aiming for I think the differences between the two are less significant than if this had been over a longer period.

What surprised me was that ignoring the investment growth versus mortgage interest (abig ignore but not quite the point AnotherJoe was making) and assuming there were no changes in the relief laws (which was) there wasn't as much difference as I had thought there would be.

Also as you allowed to reach back 3 years on your pension annual allowance (if you have enough income in the current tax year) you could probably get the best of both worlds.

Good luck - and 20 years following the 20 years you have already had should see you very secure

Pocket_poor

Evening all

A payment of £250.00 sent to the mortgage, bringing our balance down to £50,909.28.

So far we are sticking to our January budget and should be able to do another overpayment before the end of the month.

Pocket Poor X

Pocket_poor

Evening all!

Time for a mortgage update while I’m having a cup of tea and a biccie.

Our last overpayment of £598.10 sent across today, along with our standard monthly payment and our new balance is....drumroll £49,971,07. We made to the forties yippee!!!

Our new overpayment allowance resets on the 22/04, so we will direct our payments to a savings account until then.

Pocket poor X

Pocket_poor

Can’t believe we are in March already!
Well still plodding on over here, we are now having to direct our overpayments to a savings account but still going to record my monthly totals on here 
So today’s mortgage balance is
£ 48,492.00. 

Pocket Poor X

Pocket_poor

Well, haven’t been on here for a while. 

We have still been sticking to our budget and due to Covid 19 been more mindful of spending. Thankfully we still both have our jobs, but who knows how things will pan out going forward. 

Anyways my new overpayment limit has kicked in so made an overpayment of £1250.00 which brings my mortgage total to £ 47,619.00. 

Take care all 
Pocket Poor

Pocket_poor

Morning 
Wet and grey cloud here but, it is Friday 
Small payment of £100.00 sent to the mortgage, new balance £47,527.00.
Enjoy the weekend all. 

Pocket Poor X

longway2go

Hi Pocket Poor, love the name. Well done on your OPs to date, I'm going to follow your diary and cheer you along lots of luck to you.