Mortgage - Overpayments dilemma

Cookiepops

I have a bit of a dilemma but its a very nice dilemma to have!  So, I'm in my early 40's and have 16 years remaining on my £127k mortgage. I should add that my husband is 50.  I've just found out that I'm being promoted at work and I will be taking home hopefully £300 extra a month.  We live comfortably on our current salaries and always said we would overpay on our mortgage.  Husband wants this more as he is older and doesn't want to be paying a mortgage right up to retirement.  Seems like a no brainer.  But here is the dilemma.  In the last few months I've seen my Mum suddenly coming into poor health, to the point where she needs to retire early and still has a mortgage to clear.  She has enough savings to clear it but doesn't want to use it because she also has life insurance linked to the mortgage . She has said that if anything happens to her, the life insurance will clear the mortgage and there will still be some savings for my Dad.  But if they cleared the mortgage with savings and something happened to her, my Dad would have nothing.  I've also seen my Aunt suddenly pass away unexpectedly at the age of 59, not making it to retirement.  Her life insurance covered the mortgage and there was also savings for my Uncle to live on.

This has got me thinking about planning for a retirement but without being too morbid, also I need to plan for the unexpected.  Our life insurance is linked to our mortgage, so when the mortgage is paid off, we have no life insurance in place.  

Should I be overpaying my mortgage or should I find a way of putting the money away into a savings account which we cant access?  Then, make a decision to clear the mortgage closer to the time?

Any advice and experiences would be much appreciated.  Thanks

Moneyminded

How much would a separate life insurance policy be for you/ your husband? Does your workplace pension come with life insurance? Mine for example pays 4 x my basic salary should anything happen to me whilst I continue to work there. 

Cookiepops

I hadn't looked into getting a separate life insurance policy but can.  Whilst we are both healthy, we now have a family history of cancer and heart issues which is likely to work against us but I'll certainly look into it.  Yes, both your workplaces pay a 'death in service' payment.  Mine would cover the mortgage but husbands wouldn't.  Do you think overpaying our mortgage or putting it into savings is the better option for us?

Moneyminded

Do you have an emergency fund of 6 months expenses? If not, I would build this first just to cover any curve balls life decides to throw at you. If you have this in place already I would be tempted increase my pension contributions up to 15%. Then after this I would overpay the mortgage reducing the term rather than the monthly payment.  

savingholmes

I agree with Moneyminded - it can provide huge peace of mind to have any emergency fund. Are you sure the life insurance wouldn't pay out regardless of the size of the mortgage? I had to have life insurance in place to cover our mortgage but it would still pay out even if the mortgage was clear

Cookiepops

Yes, I already have an emergency fund and I'm paying in the maximum amount (allowed for this year anyway) into my company pension fund.  The life insurance is decreasing term linked with the mortgage so Im sure it goes when the mortgage does but I'll double check.
So you think I should overpay my mortgage rather than put it into savings?....

Moneyminded

If you already have an emergency fund in place and are maximising your contributions to your pension schemes then it makes financial sense to overpay your mortgage (assuming that you are allowed to without penalties) than to save. Most fixed term mortgages allow you to overpay 10% of the outstanding balance each year, you might want to double check the terms of your mortgage. Savings rates are rubbish at the moment so chances are you will save more in interest on your mortgage than you would earn in savings interest.