Overpay mortgage or pension?

foofi22

Thrugelmir said:

foofi22 said:

Thrugelmir said:

Money contributed to the pension pot is inaccessible for a long time. Once committed there's no going back. 

Equally, the money contributed to a mortgage is "inaccessible" (apart from the odd exception)

Paying down the mortgage has a wide range of benefits and offers considerable flexibility. In the worst possible scenario such as relationship breakdown, mortgage overpayment wins hands down for the majority of people. 

I wasn't commenting on the "soft" benefits of paying down the mortgage.

It was merely a counterpoint to your suggestion that, as pension contributions are inaccessible for a long time*, therefore mortgage overpayments are somehow easily accessible. (Yes, someone could borrow-back those contributions when they are re-mortgaging for example -  but I don't class that as particularly accessible)

*(they might not, it depends on the persons age)

MaxiRobriguez

foofi22 said:

Mickey666 said:

foofi22 said:

Thrugelmir said:

Money contributed to the pension pot is inaccessible for a long time. Once committed there's no going back. 

Equally, the money contributed to a mortgage is "inaccessible" (apart from the odd exception)

Why do you say that?  It's pretty easy to get a new mortgage when you own your house outright . . . . or at least it was when I did it.

In general, you can't pay towards your mortgage and a year or two later decide you want that money "back".

Course you can with a remortgage (assuming most are on two year fix with only a small proportion of people on a 5 year fix).

foofi22

Yes see above.

However, I'm not sure your assumption is particularly correct https://www.bankofengland.co.uk/bank-overground/2020/why-are-more-borrowers-choosing-long-term-fixed-rate-mortgage-products

My main point was that mortgage overpayments are not "easily" accessible - it is not like a bank account.  And pension money is not necessarily locked away for a long time - depending on the persons age.

MEM62

mcyizml3 said:

Hi I’m able to overpay my 2.35 percent mortgage or pay more into my pension. My pension is lower than I’d like but then the sooner my house is paid off the better. Any thoughts? 

Your mortgage is costing you 2,35%.  The return on you pension invested in a mid-risk portfolio should make you 5% per year.  In additional you pay your mortgage with post-tax money whereas anything that goes into your pension goes in tax-free.  

This is what they call a no-brainer.  

steampowered

bostonerimus said:

Why not split the money up and do both?

Because splitting your money will result in lower investment returns and paying more tax than putting it all into the pension.

bostonerimus

steampowered said:

bostonerimus said:

Why not split the money up and do both?

Because splitting your money will result in lower investment returns and paying more tax than putting it all into the pension.

You don't know that for sure. You might well be right, but you need to account for bad investment outcomes as well and paying off a mortgage while you are earning income is a diversifier and allows you to be more aggressive with your asset allocation in retirement. 

bostonerimus

MEM62 said:

mcyizml3 said:

Hi I’m able to overpay my 2.35 percent mortgage or pay more into my pension. My pension is lower than I’d like but then the sooner my house is paid off the better. Any thoughts? 

Your mortgage is costing you 2,35%.  The return on you pension invested in a mid-risk portfolio should make you 5% per year.  In additional you pay your mortgage with post-tax money whereas anything that goes into your pension goes in tax-free.  

This is what they call a no-brainer.  

Again you are using the conditional tense. When "should", "could" etc start creeping into your language it might (there we go again) be time to hedge your bets. Certainly start off with a good solid pension/ISA strategy, but once that is covered you can consider extra mortgage payments as a diversifier and also because of the financial freedom being mortgage free gives you.

Chiglepig

foofi22 said:

Yes see above.

However, I'm not sure your assumption is particularly correct https://www.bankofengland.co.uk/bank-overground/2020/why-are-more-borrowers-choosing-long-term-fixed-rate-mortgage-products

My main point was that mortgage overpayments are not "easily" accessible - it is not like a bank account.  And pension money is not necessarily locked away for a long time - depending on the persons age.

Long term fixed-rates does not preclude overpaying, they do offer security of a payment borrowers feel comfortable with being able to maintain. Equally, not all over payments are inaccessible (and I'm not talking about Offset Accounts), there are lenders who will take OPs off your capital on a long fix, but still maintain them as an overpayment reserve which can be used immediately on requesting a mortgage holiday - effectively a mortgage specific emergency fund.

There are some interesting answers here, but too many of you are framing your answers as the only logical option, when in fact, they are the logical option for you, not necessarily for  @mcyizm13.

Thrugelmir

foofi22 said:

Thrugelmir said:

foofi22 said:

Thrugelmir said:

Money contributed to the pension pot is inaccessible for a long time. Once committed there's no going back. 

Equally, the money contributed to a mortgage is "inaccessible" (apart from the odd exception)

Paying down the mortgage has a wide range of benefits and offers considerable flexibility. In the worst possible scenario such as relationship breakdown, mortgage overpayment wins hands down for the majority of people. 

I wasn't commenting on the "soft" benefits of paying down the mortgage.

It was merely a counterpoint to your suggestion that, as pension contributions are inaccessible for a long time*, therefore mortgage overpayments are somehow easily accessible. (Yes, someone could borrow-back those contributions when they are re-mortgaging for example -  but I don't class that as particularly accessible)

*(they might not, it depends on the persons age)

Debt is debt. Investing using debt is leveraging. Sometimes you win sometimes you lose. Many permutations arise given the curved ball life throws at you. Optimisation over maximisation is my personal preference. Not least when markets are generally getting frothy with many investors believing that they are getting something for nothing. Which is rarely the case. 

bostonerimus

Thrugelmir said:

foofi22 said:

Thrugelmir said:

foofi22 said:

Thrugelmir said:

Money contributed to the pension pot is inaccessible for a long time. Once committed there's no going back. 

Equally, the money contributed to a mortgage is "inaccessible" (apart from the odd exception)

Paying down the mortgage has a wide range of benefits and offers considerable flexibility. In the worst possible scenario such as relationship breakdown, mortgage overpayment wins hands down for the majority of people. 

I wasn't commenting on the "soft" benefits of paying down the mortgage.

It was merely a counterpoint to your suggestion that, as pension contributions are inaccessible for a long time*, therefore mortgage overpayments are somehow easily accessible. (Yes, someone could borrow-back those contributions when they are re-mortgaging for example -  but I don't class that as particularly accessible)

*(they might not, it depends on the persons age)

Debt is debt. Investing using debt is leveraging. Sometimes you win sometimes you lose. Many permutations arise given the curved ball life throws at you. Optimisation over maximisation is my personal preference. Not least when markets are generally getting frothy with many investors believing that they are getting something for nothing. Which is rarely the case. 

Very well put. It's very easy for confirmation bias to creep up on you; it worked before so it will work again isn't necessarily correct. i think of paying down a mortgage as part of my fixed income/savings allocation as where else can you get a guaranteed 2.35%. So rather than comparing it to the returns from risky stocks it should be compared to a long term saving account.

Whether to pay down the mortgage vs putting more into a pension/ISA is really an asset allocation question.