Invest in a Fidelity Index Fund or overpay on mortgage?

Circle1987

A question to you fellow MSE savers and investors.

I plan on overpaying my mortgage soon. In the meantime I have been slipping away £50 a month into an Investment ISA (specifically two global Index Funds; Fidelity Global Dividend Fund W-Accumulation (UK) and Rathbone Global Opportunities S Acc).

My question is, is it worth scrapping this plan, selling my small pot (literally a couple hundred), and just focus on overpayment my current mortgage? Or should I try to cater to both?

Mortgage is around £200k w/30 years left, I'm 35 this year and OH is 33. Our mortgage is around £830 p/m (we both pay 50% of this and split household bills). I'm on £57k p/a (+bonus) and OH is on around £41k p/a (teacher upper pay-scale outside of London).

I'd love to start an Mortgage-free wannabe thread, but would first like to get my ducks in order.

Thanks in advance, all.

Circle.

jimexbox

Myself I would be maxing out my pension contributions and overpaying on my mortgage. 

Circle1987

jimexbox said:

Myself I would be maxing out my pension contributions and overpaying on my mortgage. 

In which case, I'm thinking stop the Investment ISA payments altogether, up my pension contribution through my work (also with Fidelity) and start overpaying the mortgage.

jimjames

Personally I invested my surplus cash in a S&S ISA rather than overpaying mortgage which has financially worked far better than clearing mortgage. One area that might tip in favour of mortgage overpayments is if you are near a banding that will reduce interest rate when you next change rates so moving from 80% to 60% for example which could make it a better option.

jimexbox

Circle1987 said:

jimexbox said:

Myself I would be maxing out my pension contributions and overpaying on my mortgage. 

In which case, I'm thinking stop the Investment ISA payments altogether, up my pension contribution through my work (also with Fidelity) and start overpaying the mortgage.

Contributing more to your pension is a tax efficient form of investing. Even more so if your employer increases their contribution if you increase yours. 

Maybe set yourself a target of age 55 to have zero mortgage and a large pension pot.

I would pay to have advice from an independent expert. You're at an age when you don't want to make any mistakes. 

MX5huggy

I wouldn’t up the mortgage repayments, it’s pension and a bit of S&S ISA saving (to keep flexibility but with a view to moving it to pension). 

A few more facts would influence this what’s your Loan To Value on your home? ( mines about 25% so I’m not going to get a better value mortgage). What’s the fixed period left on the mortgage? At what rate? I’ve got 6 ish years left on a 10yr that has cost me for the last 2 years but might come back as a good deal soon). Then 10 years left but the total value will be small by then. 

Do you have children? With or without you should get your net income below £50000 (ish) so you don’t pay any 40% tax using pension contributions, with children you will then be allowed Child Benefits making a further saving. 

Albermarle

jimexbox said:

Circle1987 said:

jimexbox said:

Myself I would be maxing out my pension contributions and overpaying on my mortgage. 

In which case, I'm thinking stop the Investment ISA payments altogether, up my pension contribution through my work (also with Fidelity) and start overpaying the mortgage.

Contributing more to your pension is a tax efficient form of investing. Especially as the OP is a higher rate taxpayer , they should at least contribute enough to get the max 40% tax relief , somewhere around £7Kpa depending on bonus size and the method of making contributions , Even more so if your employer increases their contribution if you increase yours. Absolutely 

Maybe set yourself a target of age 55 to have zero mortgage and a large pension pot.

I would pay to have advice from an independent expert. You're at an age when you don't want to make any mistakes. 

See additional comments in Italics above .

I would pay to have advice from an independent expert. This would seem a bit unnecessary in this situation . In any case they seem to have only small investments , a teachers pension and a normal workplace pension , so not sure any independent financial advisor would even be interested.

jimexbox

Albermarle said:

jimexbox said:

Circle1987 said:

jimexbox said:

Myself I would be maxing out my pension contributions and overpaying on my mortgage. 

In which case, I'm thinking stop the Investment ISA payments altogether, up my pension contribution through my work (also with Fidelity) and start overpaying the mortgage.

Contributing more to your pension is a tax efficient form of investing. Especially as the OP is a higher rate taxpayer , they should at least contribute enough to get the max 40% tax relief , somewhere around £7Kpa depending on bonus size and the method of making contributions , Even more so if your employer increases their contribution if you increase yours. Absolutely 

Maybe set yourself a target of age 55 to have zero mortgage and a large pension pot.

I would pay to have advice from an independent expert. You're at an age when you don't want to make any mistakes. 

See additional comments in Italics above .

I would pay to have advice from an independent expert. This would seem a bit unnecessary in this situation . In any case they seem to have only small investments , a teachers pension and a normal workplace pension , so not sure any independent financial advisor would even be interested.

Taking huge financial decisions on advice from strangers off the Internet, is sometimes a bad decision. 

Circle1987

MX5huggy said:

I wouldn’t up the mortgage repayments, it’s pension and a bit of S&S ISA saving (to keep flexibility but with a view to moving it to pension). 

A few more facts would influence this what’s your Loan To Value on your home? ( mines about 25% so I’m not going to get a better value mortgage). What’s the fixed period left on the mortgage? At what rate? I’ve got 6 ish years left on a 10yr that has cost me for the last 2 years but might come back as a good deal soon). Then 10 years left but the total value will be small by then. 

Do you have children? With or without you should get your net income below £50000 (ish) so you don’t pay any 40% tax using pension contributions, with children you will then be allowed Child Benefits making a further saving. 

So our property we bought in 2015 for £253,500. We had it valued at Christmas time just gone, and had an offer for £385k. Currently, from doing research, I'd say our property now is valued around £400k. Currently we have around £217k on the mortgage.

We've only ever had 2 year fixed deals on our property, so the next one is up Aug 2023. I believe the rate is 1.75% (could be 1.8%). The term left will be 29 years next year.

We don't have children (yet) but getting married Aug 12th this year and children will be on their way in the next 1-2 years. I'll have to look into the whole children thing. Currently, I haven't a scooby.
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So the general consensus then, is to not overpay on the mortgage (at the moment), and instead of putting £50 into any Investment ISA funds, increase my pension contribution (currently at 7%, employer puts in 10% regardless). So I could up my contributions?

DireEmblem

With 30 years left, you could probably afford to be a bit more adventurous on your investing which should return more over the longer time period than interest savings on your mortgage.  There’s nothing wrong with you in say 10/15 years time paying off a chunk of your mortgage with your investments either.

I would check your LTV bracket.  Generally the more deposit you can put down, then the less risky you are to the lender so you might be better paying off more of your mortgage first to get a reduced rate on the full remainder of your mortgage.

Lets say you have 150k outstanding, then each saving of 0.1% interest saves you £150 a year.  Assuming a fairly decent investment return you would need a balance of £1800 invested.  If it costs you less than 1800 to save 0.1% interest, then you are better off temporarily overpaying the mortgage.

Otherwise I would think more of maxing pension contributions as well.

Circle1987

Albermarle said:

Contributing more to your pension is a tax efficient form of investing. Especially as the OP is a higher rate taxpayer , they should at least contribute enough to get the max 40% tax relief , somewhere around £7Kpa depending on bonus size and the method of making contributions , Even more so if your employer increases their contribution if you increase yours. Absolutely 

Maybe set yourself a target of age 55 to have zero mortgage and a large pension pot.

I would pay to have advice from an independent expert. You're at an age when you don't want to make any mistakes. 

See additional comments in Italics above .

When you say "40% tax relief" are you referencing the higher 40% tax bracket "[Higher Rate tax – 40% on income between £45,001 (£43,001 in Scotland) and £150,000]" ?