LISA or mortgage overpayment

22225

Thanks all for taking the time to comment.

I am in Teachers pension scheme. Due to legacy schemes etc I think I will get about 10k per annum from 60 plus 20k lump sum and I am also accruing more in the career average scheme which I will get at state pension age approx 68?

In the past I have made some additional pension/faster accrual into the scheme although I also wanted to put some in a stock market scheme to hedge my bets hence LISA. Additional pension into TPS has cost me about £250 a month for £250 extra pension a year (before tax).

Sorry to be unclear about investing in trackers, my Lisa is Vanguard Lifestrategy 80 which I thought was a tracker. Maybe I just meant passive and was confused.

I am a lower rate tax payer.

Regarding mortgage: I have 109 k at 1.54% for 2 years and then 205k at 2.24% for ten years. So yes I am concerned about the rate on the smaller mortgage after 2 years.

I have some savings in a 2 year fixed rate account at 4.30% for the mortgage.

I work part time at the moment so I plan to increase my hours in a few years.

Sorry for not giving more details before. Does that change anything????

kinger101

I'd say it does, to an extent.  I think the priority should be saving cash to use when it comes to replacing the two-year fix mortgage, ideally with something that doesn't go beyond state retirement age.  And continuing accruing in TPS.  I wouldn't make additional pension contributions a priority at the moment, but when you revisit that, I'd certainly be looking at additional years in TPS as that seems much better value that LISA/DC pension.  

It's hard to give more specific advice without asking a few more personal details though.  Understand if you don't want to give them, as it's a lot of personal information.

(a) how much do you have saved now, and what is the interest rate?
(b) how much can you comfortably save every month at the moment?
(c) what is the exact term of the smaller mortgage?
(d) would you consider increasing your hours sooner (in order to pay off mortgage sooner)?  
(e) is there any other debt and if so, what are current interest rates on that?

22225

Thanks, I would be grateful for ur insights but I don't think I want to put any more info on here. Unless I can private message you?

kinger101

Personally, I'm not comfortable with the private message.  I think it's better that any suggestions I give can be openly commented on and critiqued by other members of the forum.  This is perhaps the forum's greatest strength.  So I'll give an illustration instead which draws on some assumptions.  No. 1 being no other debt aside from mortgage.  Otherwise, the focus should likely be on reducing high interest debts first.

A £109K mortage on a 33 year term at 1.54% currently attracts a repayment of £351 per month.  At the end of those two years, the balance would be ca. £104K

https://www.moneysavingexpert.com/mortgages/mortgage-rate-calculator/

It's hard to know what rate you'd get in two years, or whether you'd be tied to a single lender based on the other mortgage. I'd say what is pretty certain is the rate will be more 1.54%. If the best available rate in 2 years is 5%, then a new 31 year term at that point would be £577 pcm.  Reducing the term to 24 years (assuming state retirement age of 68) would increase that to £651.  This is £226 or £300 pcm more than the current repayment.  Any wage increase might be sufficient to cover that, but I know the public sector have been suffering below-inflation wage increases for some time now.

If someone had £10K is savings now, and put an extra £6K away during that time, the remortgage would be for ca. 88K instead, meaning repayments of £466 or £525 or a 31 or 24 year term.  To get to the same equivalent repayment of £351 pcm over 31/24 years requires the mortgage to be reduced to ca. £66K or £59K respectively, which would require savings of £38K/£45K.

Of course, the 5% intertest rate is only indicative. 

If you are chasing good savings rates, it's worth bearing in mind that interest over £1000 pa will be taxable.

The short take home from this is that focusing on cash savings in the next two years will give you more flexibility when you know what the actual situation will be when the two-year fix expires.  What you do probably depends to some extent on how comfortably you can absorb an almost inevitable increase in mortgage repayments.  Some people can take it in their stride.  Some might need to adjust spending priorities or increase income (both my parents worked two jobs for a time in the 1980s).  But forewarned is forearmed.

The savings forum is always a good place to get advice on best available savings rates, including regular savings accounts.  

Hope that helps.

22225

Wow thank you so much for taking the time to give that detailed response. I think I've got the message about what to do. I was worried deep down about what would happen at the end of the 2 year fix but I wasnt totally sure what was the priority so this has clarified things. Thank you so much. 

22225

Thank you everyone who has given up their time to post. I honestly don't know what I would do without this site.