Should I continue to overpay 10 September 2022 at 8:37PM in Mortgage-free wannabe 4 replies 373 views

CRAIGEMMA

Hi everyone,
I have been reading this part of forum for many years reading all your words of wisdom.
This, a book I once read and claiming every cashback I can into mortgage has motivated me to hit the mortgage hard which has proven to be something of a complete lifestyle to me.
I have just received a significant bonus this year (paid basically 3x normal as received covid bonuses withheld back) and it has pushed my income massively up to £106000 which I am very grateful. A new bonus scheme however has came into force which will basically stop it ...
It has left me in a position that I know I will be in the 60% tax trap and if I posted this in the pension forum I would be told to pay into pension as not only get the uplift on HRT but also get myself out of paying an extra 20% basically on the £6000. 
Once I have paid for next years holidays and some other stuff I still have enough left to pay in enough to get me under £100,000 and save on all that tax.... but the other part of me knows I have focused on mortgage for so long... I probably won't earn bonus next year to pay into mortgage and this could get a good chunk down again (no issues re ltv bands as already under 50%).
so I suppose what I am asking is am I crazy to have such a large tax bill to pay a net figure into pension to continue to mission knowing I am giving peace of mind now v sacrifice money years from now... 

LadyWithAPlan

I guess part the question is how much longer is your mortgage and what is left on it. What is the time frame and how much room in your budget where you could cut down expenses and get the Mortgage done.
Also your age as the nearer you are to pension then the quicker you are to maybe pulling it out to pay off the remainder.
 The £6k in your SIPP/pension is an absolute must as you know.

I am saving to buy a house now but I am still throwing all HR tax monies at the pension -  40% return from the HMRC  (and NI) vs whatever your mortgage rate is 2.5%  - is a huge amount to give up to hurry a process.

By investing in your future and get a 40% return plus the compounding you get in your pension you get to also knuckle down down and look at your costs and spending now. You also, to be blunt,  seem to be very all or nothing about this. You will get raises and bonuses again - you could always move jobs.


Calculate the take home pay and tax on your holiday/fun spend and your mortgage OP vs 100% into your pension and also various other versions so 20% into OP, hol spending and rest to pension - so you are really clear on the costs.

Maybe if you feel you really want to get to a better LTV to get a better rate you could throw £10k or so at mortgage of your bonus or a % you are happy with - say 10% of bonus? It is good you are spending some of it on your holiday, maybe 10% to fun, 10-15% to mortgage then rest to your SIPP then?

 Personally I would be putting  all that bonus into your SIPP to get as near to BR tax payer as possible then focus on getting on with the task ahead. Make a plan, read loads of diaries and win on the day to day and get OPing. Someone who has made £106k is smart, on it like you are, knows how to make a plan and follow it through. Winning that way will be more satisfying too

Cornish_mum

Hi we are doing similar to Ladywithaplan. We are dual income (early 40’s with 2 kids) both HRT, and everything over 50K/year income goes into pensions. We managed to get a good fix on our mortgage (before it all hit the fan) & now anything spare (after pension and day to day expenses) goes into cash savings or my S&S ISA. 

We don’t over-pay at all, now despite being very into it previously when our mortgage interest rate was much higher and inflation much lower; and I felt worried about the debt. Our mortgage debt is currently devaluing in real terms because of inflation and thus it makes no sense to pay it off. Also compared to our income and savings the debt now feels manageable (previously it worried me a lot). 

Just for context we have a big emergency fund and MrCM job is v. secure so the risk to us of carrying our mortgage debt is small compared to the financial loss of paying it off. 

It basically comes down to the numbers and the psychological benefits of not having debt. Everyone case is different.

Best of luck CM

CRAIGEMMA

Thank you all 

savingholmes

I'd be putting the £ into pension due to the tax relief - within the limits allowed - even over-paying using previous years allowances if available