Overpay mortgage or pension

ElephantBoy57

Steve_PL_too said:

Pay into a Rainy Day fund ... you can always pay this into your pension in the fullness of time, if it hasn’t rained;

I was thinking along those lines. But surely you only get the tax incentive if you pay directly from your salary.

That way you will not pay income tax and NI on it.

csgohan4

grumiofoundation said:

DiggerUK said:

Overpaying the mortgage does increase the %ge you own  in the same way that regular mortgage payments do. 

On a capital repayment scheme you don't  pay on the portion you've paid off, you pay on the portion the mortgage company owns; the market value is irrelevant.

With the illustrative figures given as an example, the 2%  is fixed and guaranteed, the 7% isn't. The pathway chosen has to be aware of what the risks and rewards are.

But you neglected to mention the funds put into overpaying the mortgage can only be accessed when the property is sold.

As above very important. Unless your downsizing or die, your not going to access the money you dump into your property. Of course you should pay off your mortgage eventually. How quick is the question.

My investments have made me more than I have lost in mortgage interest rates for me it's a no brainer where to put my excess money, certainly not in overpaying my mortgage.  And I've only been investing for 6 months in dump and forget cheap index trackers, so nothing fancy or stellar.  If I had got onto the SMT early gravy train I would have made a boat load more. 

To be honest we are not all wrong, digger isn't wrong to want to pay off the mortgage early, it really depends on what you want from your money. That warm fuzzy feeling paying your mortgage off is nice, but if you have not maxed out your pensions and your reaching retirement in 5 years, that probably wasn't a smart thing to do. 

Personal choice. 

Biggus_Dickus

...so many different opinions and myriad options to choose;...it’s a bleedin’ minefield.

Most of the crucial long-term decisions I made were at a time when much of the finance sector was operated by unscrupulous thieves Executives who had moral compasses’ on a par with Vlad The Impaler. Personal financial decisions have never been easy.

Paying off debt can never be a bad thing but one must also make provision for the longer term future by taking informed decisions ‘now’;...however, none of us has a crystal-ball,...even though some people think they have.

 

 

 

csgohan4

Biggus_Dickus said:

...so many different opinions and myriad options to choose;...it’s a bleedin’ minefield.

Most of the crucial long-term decisions I made were at a time when much of the finance sector was operated by unscrupulous thieves Executives who had moral compasses’ on a par with Vlad The Impaler. Personal financial decisions have never been easy.

Paying off debt can never be a bad thing but one must also make provision for the longer term future by taking informed decisions ‘now’;...however, none of us has a crystal-ball,...even though some people think they have.

 

 

 

Have you considered ESG funds for which environmental, social and governance factors have been integrated into the investment process and in theory maybe your kind of funds from a moral standing. 

But ultimately we all have different opinions but with the same goal, make you the most money, albeit in different ways

It really depends on where you are in life, reaching retirement, money to burn? e.t.c?

Time4T_Accounts

ElephantBoy57 said:

Steve_PL_too said:

Pay into a Rainy Day fund ... you can always pay this into your pension in the fullness of time, if it hasn’t rained;

I was thinking along those lines. But surely you only get the tax incentive if you pay directly from your salary.

That way you will not pay income tax and NI on it.

You do get the tax incentive, subject to the maximum contribution allowed - and you can make use of the ‘carry forward’ rules as well.  The NI is the trade off for having access to the funds before 55 / 57, or whatever age it turns out to be in the fullness of time.

in respect of the lower mortgage cost -v- higher returns on investment, it might be worth recalling the experience of the 1980’s, when some financial salesmen were trying to push people into taking out higher mortgages than they needed, and investing the surplus in the finance companies’ endowment policies, arguing that the returns from the endowments would be much higher than the interest cost of the mortgage.  The rest, they say, is history!

Ultimately, I suppose, it’s a matter of each individual’s appetite for risk ...

Dandytf

@grumiofoundation
"the funds put into overpaying the mortgage can only be accessed when the property is sold."
Not necessarily, overpayment reserves can be accessed by cancelling Mortgage payment when Overpayment reserve is debited Mortgage payment, in effect freeing up Reserve funds for the chosen Months.

csgohan4

Dandytf said:

@grumiofoundation
"the funds put into overpaying the mortgage can only be accessed when the property is sold."
Not necessarily, overpayment reserves can be accessed by cancelling Mortgage payment when Overpayment reserve is debited Mortgage payment, in effect freeing up Reserve funds for the chosen Months.

Neither is it available from all lenders, in fact some are withdrawing it.

https://www.nationwide.co.uk/support/support-articles/manage-your-account/mortgage-borrow-back/borrow-back-overview

but if you do it, more interest you will need to pay

NottinghamKnight

I think liquidity is an issue that is often forgotten or not considered sufficiently. Most companies go bust due to (lack of) cashflow, and the same can be true for individuals, an extra few thousand in the bank can be very valuable if things become tight. Amounts are dependent on individual circumstance and credit card or drawing from flexible mortgages can also be useful. Balance is key, extremes are rarely the best option.

ZeroSum

steampowered said:

Statements like "the return on shares isn't guaranteed" are wrong if we are talking about a pension. There is a guaranteed 20% or 40% gain on day-one due to tax relief.

The return on stocks and shares - which averages about 7-8% over the long term - accrues on that higher amount.

If you are a higher rate taxpayer, a return of 7% on £100 of your post-tax income, starts compounding on £140, so is really a 9.8% return if you are comparing it to the £100 (which is what you'd have if you went down the paying off mortgage route). 8.4% if you are a basic rate taxpayer.

The 20% isn't guaranteed at all.
I've got a DB pension which will be above the income tax personal allowance. Therefore any additional money I put into additional pensions will all be taxed on the way out. The only tax benefit I'd get is on the 25% lumper.

Dandytf

csgohan4 said:

Dandytf said:

@grumiofoundation
"the funds put into overpaying the mortgage can only be accessed when the property is sold."
Not necessarily, overpayment reserves can be accessed by cancelling Mortgage payment when Overpayment reserve is debited Mortgage payment, in effect freeing up Reserve funds for the chosen Months.

Neither is it available from all lenders, in fact some are withdrawing it.

https://www.nationwide.co.uk/support/support-articles/manage-your-account/mortgage-borrow-back/borrow-back-overview

but if you do it, more interest you will need to pay

Not a point relevant to those including myself that don't have Natwide 'Borrow Back' facility.
I'm one of the 2010 mortgages that missed such a feature by a month or two.
Though accept that more interest is occurred in sense that when overpayment reserve isn't used in the way I have, then it does have an Interest reducing effect.