Mortgage-free for beginners

Afternoon All!

I've always been financially savvy and careful with money, but I'm now in a very lovely unexpected position I never expected to be in.

I have received a good inheritance from a Grandparent's passing and so I've cleared my 2nd mortgage (extra borrowing from house move 8 years ago) in its entirety, and paid a good chunk off my 1st mortgage (ported across various house moves over the years!).

So I'm now f down to £12k left on an original old-style Nationwide BMR at 3.25%, with a little over 18 years left.  This has unlimited overpayments, but now importantly, I can borrow back the overpayments if needed. In effect (as far as I gather to my understanding) its acts as an offset mortgage. This is important to me as a single owner, as I may need a lump sum in future and I only have me to rely on.

The mortgage was originally £155 p/m, but since the overpayment its come down to £67 p/m. My other paid-off mortgage was £227 p/m, so I now have in total £315 to play around with each month. I have £4k savings easy access as emergency fund.

So my thoughts are......

1. Use the extra £315 to overpay the remaining mortgage. Its historically gone on mortgage payments for years so I won't miss it.

2. FD regular saver at 3.5% beats interest I'm paying on my mortgage. So put the £315 "overpayment" in there, and after 12 months pay off aother lump sum. Rinse and repeat at 12 month intervals. Is it this simple? Savings beats mortgage, so savings? Usually I'd say so, but the fact the mortgage has 18 years left and the savings is only for 1yr fries my brain a bit. I don't know if I'm over thinking.

3. Hmmm. I've got a S&S Lifetime ISA. The interest rate is poor at the moment (approx 1.5%, last year it was about 9%) and I can't ordinarily afford to save anything into this month to month. Even if the interest rate on this doesn't pick up, the 25% government bonus would trump any interest from the FD regular saver. 25% of (£315 x 12) is a free £945 I wouldn't get otherwise.

I've thought so much about this my brain is going round in circles. Put it all on the mortgage? Savings I can get at in 12 months? LISA I can get at 60yrs? Someone help me out here, I've befuddled myself!

Additional info...
I'm 44, work in NHS with retirement age of 68, but I've just applied to buy out 3 years to retire at 65. Single. No children.


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  • FarmGirl78
    FarmGirl78 Posts: 74
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    Ps. I'm assuming this is the best board for my post.....but if it isn't then someone please feel free to let me know! xx
  • L9XSS
    L9XSS Posts: 438
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    Do you have a private pension in place (SIPP)? You could run this alongside your workplace pension? It’s quite tax efficient and you could access at 57 years of age?
    i,e withdraw 25% tax free at 57 to pay off any remaining mortgage?
    if you are a basic rate taxpayer every £100 you contribute to your SIPP would receive £25 uplift from HMRC......more if your a higher rate taxpayer.
  • Cornish_mum
    Cornish_mum Posts: 618
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    Hi are you sure you mean interest rate on your S&S ISA not rate of return? If your funds are in stocks and shares then the value will go up and down. (Currently down). 

    I would think about your priorities and likely scenarios. Do you see yourself staying on in the NHS to 65, do you want the option to retire a bit earlier? 
    Do you value the security of a paid off mortgage rather than the opportunity (but not necessarily guaranteed) higher rate of return of investing. 

    Regarding SIPP versus LISA, MSE has a nice page comparing the two options. I think it likely that SIPP access age will increase again, given demographic trends but this is just my opinion. 
  • FarmGirl78
    FarmGirl78 Posts: 74
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    Thanks L9XSS and Cornish Mum for your replies. I've been tootling around and learning and number crunching over the past few days.

    I didn't realise that HMRC would chip in to make SIPP contributions equivalent to tax free at source. I'm a basic rate tax payer so the only difference I can see is that SIPPs wuthdrawals get taxed after the first 25% but LISA withdrawals don't. That says LISA is best to me. I can only pay into that until I'm 50 though, so could max that out, and THEN do SIPP from 50 until 60/65. And yes Cornish Mum,  one of the articles I read seemed to think that SIPP access age would increase more likely than the LISA age would, making them more equal so it would just come back again to tax on withdrawal tax.

    I wouldn't necessarily start to draw my NHS pension before 60 or 65 (I have 15 years contributions in the historical "retire at 60" scheme, but I'm hoping I could leave the NHS before then. My job is pretty specialised so I travel a long distance to work. Instead, if my mortgage was paid off, I'd maybe leave at 55 and just get a little job that I could to in my local town to keep enough money coming in to live off until I could access my pension.

    I'd value security and paid-off-ness over getting better returns. My family has always been that way so it's been bred into me from a young age!

    Thanks again for your input, I will keep reading and keep learning.
  • elantan
    elantan Posts: 21,018
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    From what I hear the pension age for drawdown will go to 57 in the next few years, it's currently 55 but yep I think by your age it will be 57, I'm 55 but if I d0nt drawdown then I will be 57 so I'm currently working out if I should take it at 55 or not. 

    Can I ask is it costing much to buy your couple years NHS pension ? I was pondering it myself but not sure if it's worth it. 

    Good luck on your journey 
  • FarmGirl78
    FarmGirl78 Posts: 74
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    elantan said:
    From what I hear the pension age for drawdown will go to 57 in the next few years, it's currently 55 but yep I think by your age it will be 57, I'm 55 but if I d0nt drawdown then I will be 57 so I'm currently working out if I should take it at 55 or not. 

    Can I ask is it costing much to buy your couple years NHS pension ? I was pondering it myself but not sure if it's worth it. 

    Good luck on your journey 
    A few years ago before I understood its proper benefits I worked out roughly. I've worked out out more accurately and the 2 figures compare so I can't be that far out.

    I'm 44, and started in 99, so part of my pension is 95 or whatever section, and some is 2015 section. ERRBO will only apply to the 2015 bit, and only applies from what goes into my pension from here onwards, so there's a small portion I'll still get reduced.

    I'm a top band 6, and so at age 43 (it goes off age at previous 31st March) its an additional 4.5%, which for me at 0.85 fte is about £110 gross or £80 net. Bear in mind this was scribbles on the back of a beer mat so give or take a tenner.

    I worked out ish from here to 65 it would work out at a 2% interest if invested instead. But the way the economy is at the moment nothing is certain and I would rather be sure and know it's guaranteed.

    Please please don't rely on my calculations though. You can apply for a "quote" from NHS business services, but they just take 8 weeks to send you confirmation of what you can look upon the table on their website. NHSBSA being a waste of space as usual!
  • FarmGirl78
    FarmGirl78 Posts: 74
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    Ps. That's buying out the maximum 3 years.
  • elantan
    elantan Posts: 21,018
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    that's actually no where near as expensive as I thought, bought an extra 250 a year ohhhh about 7 years ago cost me 250 a month for a full year, think I wouldve been better buying the reduction in time, will send a wee message I think and maybe look into it, I plan on going at 55 and just keeping my nhs pension for pocket money as it wont be much tbh but if i can get it a few years earlier then that could be worth it 

    thanks 
  • FarmGirl78
    FarmGirl78 Posts: 74
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    Oh my goodness NO NO NO!  That's so misleading of me! I've just read that back.....to clarify that's £110 ish PER MONTH. Every month. Until I retire at 65. I missed out the vital bit if you didn't realise!
  • elantan
    elantan Posts: 21,018
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    edited 21 July 2022 at 7:11AM
    ahhh yikes     yep that makes a difference as I plan on leaving earlier than my retirement date, possibly no good for me then ... thanks anyway 

    I think I thought it was maybe a few years as I had previously took 250 extra and had to pay money for a year 
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