Pension or Mortgage overpayments

penners324

samps1973 said:

I just changed it back to Sharia, fingers crossed. Going to give It 6 months to see how it goes

Try giving it a few years. It's a pension pot, it'll be invested for many years

george_jetson

Just to echo the point above - I absolutely wouldn’t be overpaying if my mortgage rate was 1.59%

 I’d stick overpayments into a savings account and get 4-5% on that.

When the mortgage fixed rate ends transfer over what’s in the savings account…

pensionpawn

kimwp said:

Have you considered that in seven (maybe eight) years time, you'll be able to take a tax free lump-sum from your pension? There's no certain answer because of stock market uncertainty and mortgage rates changes, but if you paid into a private pension, gaining the tax relief, you could use the lump sum to pay a chunk of your mortgage.

Exactly! For every additional £1k you SS into your pension you're saving on 29% (I believe now..?) tax / NI (in addition to the higher rate savings that you've already highlighted..) and 25% of that is eventually tax free on the way out. I am 3 years into a 1.24% fixed rate and overpaying my mortgage isn't even a consideration. Back in the 90's "pension mortgages" (repayment vehicles) were marketed just for this scenario!

Hoenir

george_jetson said:

Just to echo the point above - I absolutely wouldn’t be overpaying if my mortgage rate was 1.59%

 I’d stick overpayments into a savings account and get 4-5% on that.

When the mortgage fixed rate ends transfer over what’s in the savings account…

Agreed. Save and then repay. 

Focus on getting the mortgage end date earlier. 

samps1973

Thank you for all the replies. 

So I am going to continue putting whatever I earn over £50,270 into the nest sharia fund.

I'm going to find the best savings/isa interest rates and save money in there instead of paying overpayments on the mortgage.

In 7 or 8 years time I'll take out 25% of my pension pot and pay it off the mortgage. I did think about this but wasnt sure if it would impact my later years when I retire but I guess I can top it back up and it will bring the end date of my mortgage much closer.

The only other question i have is when my current mortgage deal comes to an end and I have managed to save say 25k over the next few years, would it be best to pay the 25k off the current mortgage before it comes to an end or put it towards an extra deposit when i remortgage so I dont have to borrow as much and the same thing when I take the 25% tax free amount out of my pension pot? If i pay over the 10% allowance on overpayments in my current mortgage i have to pay a fee.

My current mortgage has about £123,000 left to pay and the htb is approx 40k. The broker I used said when I come to remortgage to combine the htb loan and the mortgage into into a new mortgage.

If there is anything else you think I can do with my pension or mortgage term, could you let me know please.

Thanks

Kernowshep

Depending on the interest rates at the renewal time, and your salary and tax thresholds, I'd be considering not reducing the mortgage by the £25k but paying it into your pension instead or using it to supplement income when paying in more. (Assuming you have other savings for a buffer).  Taking this a step further, if you're earning enough and can access an IO mortgage, you could have lower mortgage payments and divert the extra into the pension (saving more tax).

If at the time you do want to use the £25k to reduce the mortgage (maybe to get into a lower LTV band), I'd do it at the start of the new one (so you aren't penalised for overpaying more than 10% on the old one).

Whether to payoff the htb loan with a bigger mortgage will partially depend on the rates available at the time, what house prices have done over the 5 years between when you took the htb loan and renewal, and what you think they will do from there (because of the change in the 20% htb loan value linked to the house value).

samps1973

Thanks for your post @Kernowshep. I've read through your post quite a few times.

I'm not quite sure what you mean about the pension. 
I'm 50 now, do you mean put my savings into my pension instead of an isa so that I can get 25% tax free when I'm 57. I can get 5.2% on an isa. If I put my savings into my pension although I can get 25% tax free the other 75% will be tied onto my pension and if I withdrew any I'd have to pay the higher rate of tax on it. Hope that makes sense🤔

At the moment I'm putting whatever I earn over £50,270 into my pension to get the 40% back and what i was overpaying on my mortgage is now going into an isa at 5.2% my motgage is 1.59%. If there is any other way i can improve my situation in anyway, could you let me know please.

Thank you

dunstonh

I'm not quite sure what you mean about the pension. 
I'm 50 now, do you mean put my savings into my pension instead of an isa so that I can get 25% tax free when I'm 57. I can get 5.2% on an isa. If I put my savings into my pension although I can get 25% tax free the other 75% will be tied onto my pension and if I withdrew any I'd have to pay the higher rate of tax on it. Hope that makes sense🤔

For retirement planning, pensions beat ISA on a like for like basis.  i.e. you pay pay minus what you pay out will be higher if you are at the same tax rate or (even better) a lower tax rate. i.e. if you are higher rate now but basic rate  in retirement then pensions are significantly better.   But at the same rate in retirement, e.g. higher rate now, and higher rate in retirement, then its still better than ISA but not by as much.

If you need the money whilst you are still working, then the ISA will be better because of the consequences of accessing your pension during your working life.   If you don't need the money whilst you are still working then pension will be better.

Pat38493

dunstonh said:

I'm not quite sure what you mean about the pension. 
I'm 50 now, do you mean put my savings into my pension instead of an isa so that I can get 25% tax free when I'm 57. I can get 5.2% on an isa. If I put my savings into my pension although I can get 25% tax free the other 75% will be tied onto my pension and if I withdrew any I'd have to pay the higher rate of tax on it. Hope that makes sense🤔

For retirement planning, pensions beat ISA on a like for like basis.  i.e. you pay pay minus what you pay out will be higher if you are at the same tax rate or (even better) a lower tax rate. i.e. if you are higher rate now but basic rate  in retirement then pensions are significantly better.   But at the same rate in retirement, e.g. higher rate now, and higher rate in retirement, then its still better than ISA but not by as much.

If you need the money whilst you are still working, then the ISA will be better because of the consequences of accessing your pension during your working life.   If you don't need the money whilst you are still working then pension will be better.

Technically wouldn't there even be potential reasons to use pension if your plan only called for use of tax free amounts from your pension during tax years when you are still working? (or did you mean trying to access your pension before the normal age which I thought is simply not allowed unless you are terminally ill)?

samps1973

@Pat38493 As I'm 50 and late starting a mortgage, I'm trying to figure out the best way to pay my mortgage as quickly as possible because of my age but also not make a mistake with my pension so that I struggle in later life. Bit of a confusing one I guess.

With the advice I've been given here, so far I have changed to the sharia fund with nest pension which is doing very well at the moment. I have opened a cash isa which pays 5.2% interest and am planning on putting any overpayments into the isa instead of paying off the mortgage as its 1.59% Which I didnt think about but makes a lot of sense. I am going to save approx 20k within 3yrs into my isa and I will look at the interest rates of the new remortgage in 3 years time and decide whether to continue saving the overpayments in the isa. I also have to consider the help to buy amount  and whether the house prices have gone up or down etc and the interest rate there too.

 @Kernoshep wrote in a post above about something I can do with my private pension above  but I'm not sure how to go about it.

I'm going to pay anything I earn over £50,270 into my nest pension so I recieve tax relief, the tax releif I get back each year in the higher rate as a refund I am also going to put into the isa. I wont use my private pension until I'm in the br tax bracket.

I'll also consider when I'm 57 currently 55 I think, whether to draw the 25% tax free amount from my private pension depending again on the interest rates at that time.

I'm just wondering if that's ok and would anybody do anything to improve on that as I feel if I make a small mistake it could cost a lot in the long term.

I'm trying to sort it out now so that I dont get too old to lose my marbles 😂and also have to work till I'm 75 to pay the mortgage off.

I appreciate all the help you guys have given me here.

Thank you