Should I overpay?

Pat38493Pat38493 Forumite
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Hi - had a discussion with a financial adviser about 6 months ago and I raised this subject.  His advice seemed to be - don’t bother overpaying your mortgage as you can make a better return than your mortgage interest rate by putting any spare cash into an pension or investment ISA.  Do you think this is good advice?

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  • MFW2026MFW2026 Forumite
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    Nurse striving for financial freedom
  • Pat38493Pat38493 Forumite
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    Thanks - I looked at the thread.  I guess the arguments are quite strong to put into the pension - however what if you are in breach of the LTA or expect to exceed it before retirement - does this make it a more evenly balanced thing?
  • Thriftmaster1973Thriftmaster1973 Forumite
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    Being a simplistic man myself, I opted to overpay, firstly I compressed the mortgage to a shorter term (saving £17k interest), then been doing overpayments on steroids.

    Looking at the economy now I'm quite happy I went down the overpayment route.

    Maybe I've done it wrong, but I've now got thrifty & frugal living down to a tee.
    £52,365 owing December 2017.
    Now for the final countdown...
    1st Jan 2021 - £29,316
    1st Feb 2021 - £28,809
    1st Mar 2021 - £27,309
    1st Apr 2021 - £26,811
    1st May 2021 - £26,315
    1st Jun 2021 - £25,811
    1st Jul 2021 - £24,311
    1st Aug 2021 - £23,809
    1st Sep 2021 - £22,305
    1st Oct 2021 - £21,798
    1st Nov 2021 - £20,292
    1st Dec 2021 - £19,783
    1st Jan 2022 - £18,276
    1st Feb 2022 - £17,762
    1st Mar 2022 -£17,248
    1st Apr 2022 -£15,713
    1st May 2022 - £15,202
    1st Jun 2022 - £13,703
    1st Jul 2022 - £13,184
    1st Aug 2022 - £11,665
    1st Sep 2022 - £?????
    1st Oct 2022 - £?????
    1st Nov 2022 - £?????
    1st Dec 2022 - £?????

    Overpayment Pot @ 1st July = £2666

    Actual debt = £8999


    "Yes, the medicine is harsh, but the patient requires it in order to live, should we withhold the medicine?"

    Hopefully at zero mortgage debt or very close to it.
    Determined for freedom 🍻🥂🍸🍹.
  • SistergoldSistergold Forumite
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    Yes pension needs to be taken care of, investments are good if you are that way inclined and if you understand the ins and outs of it. Some element of overpayment despite all the good returns promised above is also good I think. For me overpayment is also important in future proofing a roof over my head as pension will only come at a later date. 
    I overpay so that if interests rates go up in the future or I am for some reason not earning as much as I am earning now my mortgage would have been greatly my reduced. 
    Initial mortgage bal £487.5k, current £397k, target £320k
    Mortgage start date first week of July 2019,
    Mortgage term 23yrs(end of June 2042🙇🏽‍♀️), 
    Target is to pay it off in 10years(by 2030🥳). 
    MFW #34 (2021 mfw#47)(2020 mfw#136)
    £12K in 2021 #54 (in 2020 #148)
    MFiT-T6#27
    To save £100K in 48months start 01/07/2020 @£87460 SoFar 
    Am a single mom of 4. 
    Do not wait to buy a property, Buy a property and wait. 🤓
  • MFW2026MFW2026 Forumite
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    I do a mix of both. I work part time in NHS so have a DB pension, pay £80 into vanguard SIPP which = £100 and am attempting to pay 10% OPs this year and until 2026 🤞 pension board would say max out pension OPs however as you say a balance between both can work too. 
    Nurse striving for financial freedom
  • edited 1 March at 4:44PM
    jimjamesjimjames Forumite
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    edited 1 March at 4:44PM
    From a personal perspective I put money I could have used for overpayments into a S&S ISA rather than pension starting around 15 years ago. Maybe not as tax efficient but was more useful to have access to the money and know I could use it to clear the mortgage if I had wanted. Money I'd put into investments had exceeded mortgage value around 8 years ago but I left them there and carried on paying mortgage. More recently I did make some lump sum overpayments to hit the 10% allowed each year and mortgage is now down to 4 figures and will be cleared this year.

    Really down to personal preference but from a financial perspective (not emotional) it should work out better to invest when rates are much lower than investment returns. That might not be the case when rates start rising again, the last 15 years have been very benign for mortgage rates.

    Remember the saying: if it looks too good to be true it almost certainly is.
  • Pat38493Pat38493 Forumite
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    I guess from a pure financial perspective, when I retire, it might be better to leave my pension fund invested and keep my mortgage open, rather than paying off the mortgage, even if it means taking money out of the pension at a faster rate in the earlier years.

    This is probably the optimal financial planning thing to do but it it probably makes you “feel” like you are spending the pension money faster than you should be.
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