Overpay mortgage or pension?

Fly_Guy

Maybe it’s worth considering an offset mortgage? We have almost exactly our outstanding mortgage balance in our offset account and have the building society take the monthly payment from that offset account. 

So no interest paid on the mortgage and no monthly mortgage payment coming out of our earned salary. We feel as if the house is paid off and it’s great to have this stage of our life behind us.

But, we still have the flexibility to dip into that offset account in an emergency, and ‘borrow’ from ourselves rapidly and without any paperwork / hassle.

And yes, what was previously going to pay the mortgage is now going into our SIPPs.

AnotherJoe

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? 

Are you a higher rate taxpayer? If yes, more into pension.

Mickey666

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".

Not sure why someone actively overpaying their mortgage would then take out a new one once they own their house outright?!

Because circumstances can change.  The basic point here is that any money paid into reducing a mortgage is far easier to recover if suddenly needed than if the money was paid into a pension fund.

Changing mortgage provider is fairly commonplace these days - sometimes to get a better rate, sometimes to release some equity.  The point is that it can be done if necessary.  Try doing the same thing with a pension fund!

Dandytf

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. 

+1 unemployment.

edgex

It's a question that can't be answered because you haven't given any details to work with.

bostonerimus

edgex said:

It's a question that can't be answered because you haven't given any details to work with.

It's just an asset allocation question. 

Dandytf

I cannot ignore extra Mortgage payments, the declining rate of Balance is noticeable.
As others advise, building up Emergency overpayments offers amazing additional Security.

Next is latest Employers Pension, and exited Employers Pension choices, from 18k approx.

My strategy is 50/50 Mortgage + Pension additional payments (fixed and amended if and when required)

MEM62

bostonerimus said:

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.

Of course, because nobody has a crystal ball so 'should' is the correct term. Investment carries risk and does not offer guarantees.    Historically, that level of performance has been reliable in the long term but we cannot see into the future.  However, it is reasonable to take the view that the return on investment will outstrip the cost of the mortgage.   

bostonerimus

MEM62 said:

bostonerimus said:

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.

Of course, because nobody has a crystal ball so 'should' is the correct term. Investment carries risk and does not offer guarantees.    Historically, that level of performance has been reliable in the long term but we cannot see into the future.  However, it is reasonable to take the view that the return on investment will outstrip the cost of the mortgage.   

Yes investing in equities inside a pension has tax advantages and could well produce greater gains than saving money on mortgage interest payments and the growth in the house price. But you don't usually go with 100% equities in a pension fund and you have a bond allocation that you know will do worse than equities, but dampens volatility and is a hedge against a stock crash. Paying something extra into the mortgage is a similar hedge against bad times. Being mortgage free last March as stock prices fell and if you weren't furloughed and couldn't work would have been a big relief.

Thrugelmir

MEM62 said:

bostonerimus said:

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.

 However, it is reasonable to take the view that the return on investment will outstrip the cost of the mortgage.   

People are generally influenced by their experience to date. Been an easy ride over the past decade or so. Which results in complacency.  Global markets broadly rising against a declining increase in the level of global trade in the years prior to the pandemic.