Overpay or use Shared Cost AVC?

HappyNow

Hello 

I have just upgraded to Mortgage Free Wannabe after many years as a Debt Free Wannabe. The mortgage has always taken a back seat while I focused on unsecured debt (of which there was plenty!), but now the unsecured debt is gone and it's time to turn the spotlight on the mortgage.

My husband and I (him 64, me 62) owe £22,330 to Nationwide. The interest rate is 2.1%, repayments £269 monthly (completely affordable), and it is due to be paid off December 2028. Unlimited overpayments are allowed.

However, I want it to be fully paid off by January 2025 which is my retirement date. This is because our household income will drop when I swap my part-time salary for state pension. Not only that, if I should die while I'm still working my husband will get a good "death in service" payment via my work pension. However, if I die AFTER January 2025 my pension dies with me and he might struggle with a mortgage. (I am fit and healthy, but the pandemic makes me consider such things!).

My work pension is Defined Benefit and will give a lump sum of £7,200 in January 2025, which is destined solely for the mortgage. That leaves £15,130 plus interest to find over the next 43 paydays. I think I have two options and I wondered if anyone could suggest which is best? Should I:

1) Simply overpay on the mortgage each month (I think it will mean increasing the monthly payments to around  £380 which is affordable). 
2) Take advantage of my company's Shared Cost Additional Voluntary Contributions scheme. It's a salary sacrifice scheme so I would make savings on NI and income tax. I haven't asked for any figures yet, but I think I would need to contribute around £75 per month. Plus obviously carry on with the mortgage of £269..

My worries with the Additional Voluntary Contributions option are that firstly it's quite a short time-scale and if there's a market crash when I retire I might not be able to clear the mortgage. Secondly I will pay more mortgage interest because it won't be reducing as quickly as if I was making monthly overpayments..

I honestly don't know whether either option is a no-brainer! If there's not much difference I will just do the monthly overpayments  so I can see the balance reduce.

Thanks in advance for any thoughts 

clueless_but_curious

Your abbreviations are not obvious but if you are referring to additional voluntary contributions to a defined contribution scheme, you need consider how much you put in vs how much you can pull out tax free, and the tax you have saved (and NI if salary sacrifice).  Then you need to calculate the interest you could have saved by overpaying.  
In terms of your pension pot, and I'm sure this is well covered in other forums, generally the strategy is to transition to lower risk investments (e.g. government bonds) as you get closer to retirement 

HappyNow

@clueless_but_curious Thanks for your reply, and apologies for the abbreviations. I've edited the post to get rid of them.

I *think* I can pay in around £100 monthly in AVC and still take the whole sum as tax free lump sum, but I will make a phone appointment with the provider to confirm. Once I've done that I'll try to do the sums - although of course I will be at market risk with the AVC as I believe they are defined contribution via Prudential (my work pension is defined benefit).

Thanks again