Advice needed on which way to go

sawbo1979

Hi All,

I wasnt sure where to post this, so picked mortgages as i think its the key subject.

I would like advice on the best way to turn with regards to clearning my mortgage early and ramping up the pension.

The situation:

I am just coming to the end of year 3 on a 5 year fixed 1.49% mortgage but am going to be in the very lucky position to be able to clear the whole balance early in July 2024, the mortgage deal runs out in Aug 2026.

The balance in July 2024 will be approx. £125k.

My monthly payment is £909 and I have been overpaying by £550 for some time now making the gross monthly payment £1459.

There will be a 5% ERC on the Mortgage of approx. £6250

My question is as follows:

Is it worth paying the ERC to get the mortgage clear, then invest the £1459 + Tax (£2429) into pension?

This would mean a boost of approx. £58k over the rest of the mortgage term to pension with approx. £25k saved on income tax.

Thanks

HouseMartin567

For the next 2 years would you not be better off putting as much money as you can into tax-free savings (premium bonds, ISAs) with the rest in high rate savings accounts? Then pay off the mortgage when you no longer have the ERC, and at that point start paying the ‘mortgage payment’ into your pension. I haven’t done the maths but a £6250 ERC seems a lot of money to throw away.

Note - the answer may be different if you have already maxed out your tax-free saving routes and are a higher rate tax payer.

Archerychick

I agree with this, it’s bonkers to pay that amount of money to clear it. I would consider saving the money instead in as high rate account you can find given you’re only paying 1.49% in the borrowing