Pension Options Advice at 29 years Old

Trundley27 · 24 May 2018 at 5:36PM

I know this is why I!!!8217;m looking forward to remortgage!!! So I can get a better deal!

If I go back to basics, my plan was to, as follows:

Pay lump sum off mortgage in March 19 £5500 get total balance to £104,000.
My monthly payment is £640 currently, so I looked on the money saving re-mortgage best deals and could go into a 2 year deal, no product fees and reduce term to 14 years to match my monthly payment now of £640 (Which I can more than afford) then after remortgage I was going to save up another lump sum and pay this off the new balance each year, year on year, (In a idea world with no financial bumps) therefore overpaying on the new deal would bring me in at 10 years paid off! With remortgaging along the way.
Divide the monthly payment of the what was mortgage, divert so much into my pension and so much into savings etc. But in the mean time year on year until the mortgage is finished increase pension contributions using the pay rise trick.

kidmugsy · 24 May 2018 at 7:48PM

In one sense we don't know and can't know what's for the best. Maybe there will be a stock market slaughter like Wall St in 1929: then running down your mortgage might be a good idea until you pluck up courage to buy shares at a much reduced price. On the other hand that might not happen. Maybe there will be a great inflation starting just after you fix your new mortgage terms; then a ten year fix at 3.5% (or whatever is on offer) would be a brilliant deal.

In your shoes I think I might try to save cash at the moment with a view to opening the new mortgage loan with an LTV low enough to get me a sharp interest rate. What is your current estimate of the value of your house? Then in April 2019 you can take stock of your position and decide what to do next.

One other thing: in your shoes I would look for flexibility. Rather than go for a mortgage with a short life I might prefer one with a longer life but where I could make large overpayments if I wanted to. And ideally one where I could borrow back overpayments in the future in case I should need the money.

You have roughly eleven months until a big decision will be made; there's no need to make other decisions just yet. Perhaps you could both open regular saver accounts (the best pay 5% AER) of the sort that allow you to draw much of the money out before the one year term ends.

AnotherJoe · 24 May 2018 at 8:05PM

Trundley27 wrote: »

At the moment the mortgage is fixed for 5 years with 11 months left to re-mortgage, at 5%.
!

Wow. How did you end up with that ? That does alter things. You've probabjy got a whacking big ERC as well!

However once that's done you should be able to get to a much lower rate and then my comments stand, yes reduce mortage to a reasonable length, but don't go all in at 14 years when the rate will likely be 2%.

cloud_dog · 24 May 2018 at 11:33PM

Trundley27 wrote: »

If I go back to basics, my plan was to, as follows:

Pay lump sum off mortgage in March 19 £5500 get total balance to £104,000.
My monthly payment is £640 currently, so I looked on the money saving re-mortgage best deals and could go into a 2 year deal, no product fees and reduce term to 14 years to match my monthly payment now of £640 (Which I can more than afford) then after remortgage I was going to save up another lump sum and pay this off the new balance each year, year on year, (In a idea world with no financial bumps) therefore overpaying on the new deal would bring me in at 10 years paid off! With remortgaging along the way.
Divide the monthly payment of the what was mortgage, divert so much into my pension and so much into savings etc. But in the mean time year on year until the mortgage is finished increase pension contributions using the pay rise trick.

What I was trying to say was to review each aspect in isolation. So, ignoring your 'need' to reduce the term for the moment, what is the penalty for re-mortgaging now?

Doing a simple mortgage repayment calculation based on the £109.5k and 5%, with a £640 monthly repayment, if you were to re-mortgage today to a 2% lR, you would be paying £464 (for a 25 year term).

This is a saving of £176pm. If you multiplied that by the months remaining in your current deal you would save £1936 over 11 months. So, if you were to re-mortgage tomorrow what is the early repayment fee? If you could re-mortgage tomorrow with all costs coming in at anything less than £1936 then, from a pure financial sense, you would be better off re-mortgaging tomorrow.

In your shoes I would stick with a 20/25 year term.

This is not to say you intend to run it for 25 years. Assuming your new deal allows overpayments then you can choose to do this and, assuming all other things remain equal, you could still pay off your mortgage within 14 or so years. OR, you could choose to make additional pension payments or ISA, or....

Trundley27 · 25 May 2018 at 9:01AM

I have always had the mindset that you should rid debts quickly, but I can see from all your points on how there is others ways you can deal with this. I just want to make the correct decision upon re-mortgaging, as currently our financial position is fairly good.

I am from the North East of England so when we bought the house it was during the historic low period of house buying, also with it being the North East we bought a 4 bedroom 1930's house, with an already built on conservatory, loft conversion and kitchen extension with a big garden for £125,000 it needed some work, which is pretty much done so we put a 5% deposit down and used cash for all the renovations so it was out the way. This is why we are on a higher interest rate which I want to change at re-mortgage.

I am not sure what the penalty charge would be, I would have to look. but from your equations I fully understand that it may make sense to re-mortgage now.

On the Pensions side of things, my plan is this. we are comfortable living on our monthly salaries after all bills and savings.

So I was thinking.

7% Personal (June 18) 5% Company = Total Combined 12%

9% Personal (February 19) 5% Company = Total Combined 14%

11% Personal (February 20 5% Comapany = Total Combined 16%

Small forecast for pension over next 1 and half years.

I could remortgage on 20 or 25 years and increase pension and increase isa contributions etc and then in view of paying off early still in 10 plus years depending on circumstances.

So i could either do the above with mortgage or remortgage on 14 years at same monthly payment as now and save each month etc etc !!!8230;..

AnotherJoe · 25 May 2018 at 7:26PM

DO NOT remortgage for 14 years. Remortgage for longer and overpay.

Most will let you overpay by 10% a year (check yours will).
Same end result, much more flexible.

badmemory · 25 May 2018 at 10:54PM

If your partner is going to be a life partner then it would make sense to have her future income on a par with yours so that you as a couple are tax efficient. There is little point in you having taxed income when she hasn't enough income to pay tax.

Pension Options Advice at 29 years Old

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