Should I overpay? 27 February at 10:11AM in Mortgage-Free Wannabe 7 replies 293 views

Pat38493

Hi - had a discussion with a financial adviser about 6 months ago and I raised this subject.  His advice seemed to be - don’t bother overpaying your mortgage as you can make a better return than your mortgage interest rate by putting any spare cash into an pension or investment ISA.  Do you think this is good advice?

MFW2026

This thread may help

https://forums.moneysavingexpert.com/discussion/6261664/overpay-mortgage-or-pension

Pat38493

Thanks - I looked at the thread.  I guess the arguments are quite strong to put into the pension - however what if you are in breach of the LTA or expect to exceed it before retirement - does this make it a more evenly balanced thing?

Thriftmaster1973

Being a simplistic man myself, I opted to overpay, firstly I compressed the mortgage to a shorter term (saving £17k interest), then been doing overpayments on steroids.

Looking at the economy now I'm quite happy I went down the overpayment route.

Maybe I've done it wrong, but I've now got thrifty & frugal living down to a tee.

Sistergold

Yes pension needs to be taken care of, investments are good if you are that way inclined and if you understand the ins and outs of it. Some element of overpayment despite all the good returns promised above is also good I think. For me overpayment is also important in future proofing a roof over my head as pension will only come at a later date. 

I overpay so that if interests rates go up in the future or I am for some reason not earning as much as I am earning now my mortgage would have been greatly my reduced. 

MFW2026

I do a mix of both. I work part time in NHS so have a DB pension, pay £80 into vanguard SIPP which = £100 and am attempting to pay 10% OPs this year and until 2026 🤞 pension board would say max out pension OPs however as you say a balance between both can work too. 

jimjames

From a personal perspective I put money I could have used for overpayments into a S&S ISA rather than pension starting around 15 years ago. Maybe not as tax efficient but was more useful to have access to the money and know I could use it to clear the mortgage if I had wanted. Money I'd put into investments had exceeded mortgage value around 8 years ago but I left them there and carried on paying mortgage. More recently I did make some lump sum overpayments to hit the 10% allowed each year and mortgage is now down to 4 figures and will be cleared this year.

Really down to personal preference but from a financial perspective (not emotional) it should work out better to invest when rates are much lower than investment returns. That might not be the case when rates start rising again, the last 15 years have been very benign for mortgage rates.

Pat38493

I guess from a pure financial perspective, when I retire, it might be better to leave my pension fund invested and keep my mortgage open, rather than paying off the mortgage, even if it means taking money out of the pension at a faster rate in the earlier years.

This is probably the optimal financial planning thing to do but it it probably makes you “feel” like you are spending the pension money faster than you should be.