Pay off mortgage in full? Or invest?

ukdw

Whilst I agree that it would be nice to pay off the mortgage (and also what I did at a fairly similar age), another alternative which there is a fairly good chance of ending up making you better off in retirement is:
1. Remortgage and extend it to say 20 years - best 5 year rate available at the moment is about 4% - so this would push your monthly payments down to about £160 (after a £1k setup fee).
2. Keep about £20k as an emergency fund - and invest the other £21k in a well diversified equity tracker fund - ideally indirectly in a salary sacrifice pension if either of you have one available - to save NI and well as tax.
3. Invest the extra £390 each month into pension contributions too  - ideally salary sacrificed too. 

themadvix

I’d double check the rate on your mortgage - currently the Santander standard variable rate (which is what it sounds like you’re on) is 7.25%, which is much higher than 4.75%. 

Once you’ve paid off the mortgage (which is what I’d do given the interest rates), I’d look at a global all cap tracker in an S&S ISA with a low-fee provider - e.g. Vanguard. 

pensionpawn

ian1246 said:

Is your husbands pension a defined contribution scheme or a defined benefits scheme? If its a DC scheme even if he died, you would get it all since it is just a pot of money which you can either draw down or exchange for an annuity.

Defined benefit scheme however is different (I.e. such as a Police Pension)

£40k into your pension(s) will turn into £50k and you will be able to withdraw all (plus extra) of that tax saving, tax free from 58. £10k+ free money, you just have to wait. If markets are kind to you, probably much more! However that depends on your financial needs now and your attitude to being debt free. I quite like the idea of the government paying off (part / most of) my mortgage, however it's horses for courses....

GunJack

pensionpawn said:

£40k into your pension(s) will turn into £50k and you will be able to withdraw all (plus extra) of that tax saving, tax free from 58. £10k+ free money, you just have to wait. If markets are kind to you, probably much more! However that depends on your financial needs now and your attitude to being debt free. I quite like the idea of the government paying off (part / most of) my mortgage, however it's horses for courses....

The OP and OH are 40 and 45...that's a minimum of 13 years before the pensions can be accessed...a long time when half of that is paying a mortgage.

I'd pay the mortgage off now and then add to pensions with the mortgage saving.

plus, no-one can reposess your house if it's paid-for

Simon11

GunJack said:

I'd pay the mortgage off now and then add to pensions with the mortgage saving.

plus, no-one can reposess your house if it's paid-for

Quite a few people here waving the flag to pay off the mortgage now, rather than focus on your pension.

For most people (particularly people in the 40% tax bracket), it will be financially better to pay into your pension than to pay off the mortgage (which is most likely to be the cheapest loan that you ever get).

For me, I benefit from 40% tax bracket saving when paying into the pension and with a mortgage rate of under 2%, the pensions on average are more likely to return a better return than 2%. Thus for my situation, I am better off shoving spare money into the pension than overpaying the mortgage and giving myself a better financial future.

pensionpawn

GunJack said:

pensionpawn said:

£40k into your pension(s) will turn into £50k and you will be able to withdraw all (plus extra) of that tax saving, tax free from 58. £10k+ free money, you just have to wait. If markets are kind to you, probably much more! However that depends on your financial needs now and your attitude to being debt free. I quite like the idea of the government paying off (part / most of) my mortgage, however it's horses for courses....

The OP and OH are 40 and 45...that's a minimum of 13 years before the pensions can be accessed...a long time when half of that is paying a mortgage.

I'd pay the mortgage off now and then add to pensions with the mortgage saving.

plus, no-one can reposess your house if it's paid-for

As I said, horses for courses. I have no doubt that the feeling of being mortgage / debt free is as good as the feeling of telling your boss, as soon as you can access your (significant) pension, that you now only turn up because it suits you, and that he / she really needs to give that work to someone else, agree to your reduced hours request etc,  

Albermarle

Bimbly said:

happymum37 said:

I think it's called a tracker? So our fixed rate ended a couple of years ago and we just went onto 0.75% above the base rate? It's not fixed now so we have unlimited over payment 

We are with santander and when I did a very rough check against others we had to get a product fee and valuation done.. didn't seem worth it?

I have exactly the same mortgage, so just confirming this is a thing. I also didn't fix as the rate was better than any available fix until the base rate started to go up in a crazy manner.

Just to echo everyone else - pay off the mortgage! You still keep the asset of the house and you don't have to worry about it any more. Put the rest into a decent savings account(s) as a rainy day fund. Use the money you were spending on the mortgage to add to your pensions.

Reading through the thread, this might be the best option for the OP.
Pay off the mortgage and then the husband to increase his pension contributions via his employer, but by a significant amount , not just a couple of per cent. Also she can maybe increase her police pension contributions as well. 

OP - You mention that the Aviva pension is rubbish. In fact it is not the pension itself that is the problem,  but the low amounts going into it . To have a decent retirement/ not work until you are 70 , you need some decent pension provision on top of the state pension. 

happymum37

kipsterno1 said:

Not knowing your flexible working plan this might be off the wall but here goes. Could you put money towards child care, after school, summer club and up your working hours? This would give you more take home pay and plug some of the pension gap you are working towards. As I said, off the wall.

Nah that's not for me. They are only young once x

happymum37

Albermarle said:

Bimbly said:

happymum37 said:

I think it's called a tracker? So our fixed rate ended a couple of years ago and we just went onto 0.75% above the base rate? It's not fixed now so we have unlimited over payment 

We are with santander and when I did a very rough check against others we had to get a product fee and valuation done.. didn't seem worth it?

I have exactly the same mortgage, so just confirming this is a thing. I also didn't fix as the rate was better than any available fix until the base rate started to go up in a crazy manner.

Just to echo everyone else - pay off the mortgage! You still keep the asset of the house and you don't have to worry about it any more. Put the rest into a decent savings account(s) as a rainy day fund. Use the money you were spending on the mortgage to add to your pensions.

Reading through the thread, this might be the best option for the OP.
Pay off the mortgage and then the husband to increase his pension contributions via his employer, but by a significant amount , not just a couple of per cent. Also she can maybe increase her police pension contributions as well. 

OP - You mention that the Aviva pension is rubbish. In fact it is not the pension itself that is the problem,  but the low amounts going into it . To have a decent retirement/ not work until you are 70 , you need some decent pension provision on top of the state pension. 

How much would you say we should be putting in? I pay the standard police percentage plus 125 extra per month. 

Hubby thinks he is now putting 8% into a pension.  I think.  I need to check on Monday . His boss puts 3% in

Bimbly

themadvix said:

I’d double check the rate on your mortgage - currently the Santander standard variable rate (which is what it sounds like you’re on) is 7.25%, which is much higher than 4.75%. 

They are not on the Santander Variable Rate. They are on 0.75% over bank base rate. Same as me. So will be going up to 5% after this week's rate rise.

In my case, the deal is what the mortgage reverted to once the fixed rate had ended - it was an old Alliance & Leicester mortgage. It's basically a lifetime tracker.