Overpay mortgage or pension

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pollyanna24
pollyanna24 Posts: 4,370 Forumite
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in Marriage, relationships & families
Didn’t know which board to put this in; pensions, mortgages etc, so have put it here.

Is it worth overpaying my mortgage or putting the extra money into my pension?

I’m talking £500 a month for about 8 months of the year, £4,000 a year.
Pink Sproglettes born 2008 and 2010
Mortgages (End 2017) - £180,235.03
(End 2021) - £131,215.25 DID IT!!!
(End 2022) - Target £116,213.81
«13456

Comments

  • Mr_Singleton
    Mr_Singleton Posts: 1,891 Forumite
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    I'd do the mortgage but depends on how old you are and the state of your mortgage.
  • Seanymph
    Seanymph Posts: 2,874 Forumite
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    This is a long debated choice!

    For me it came down to the immediacy of it - if I paid off the mortgage (and saved the interest) it gave me more disposable income to make choices about.

    If you are happy to lock the money away - then pension.

    Why not do a bit of each? Increase your pension payments, but still down pay the mortgage?
  • pollypenny
    pollypenny Posts: 29,393 Forumite
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    Difficult one. I!!!8217;m a financial worrier so I!!!8217;d probably go for the mortgage. However, extras on the pension is probably the better long-term bet.

    Having struggled with the 15% interest rates in the 90s, we were able to keep the mortgage payments at the same level when rates came down a bit.

    On union advice, I also paid AVCs to boost my pension. This was the wrong choice, though, should have bought extra years.
    Member #14 of SKI-ers club

    Words, words, they're all we have to go by!.

    (Pity they are mangled by this autocorrect!)
  • ukjoel
    ukjoel Posts: 1,468 Forumite
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    Need more information..
    If you overpay your pension are you a 20% or 40% taxpayer?
    At 40% you will save lots lots more.
    Are you paying by salary sacrifice, if so are your company giving you the full NI benefit to you?

    Whats the rate of interest on the mortgage?
    How comfortable are you with the amount?
    Do you have income protection if you lost your job
    Do you have a financial safety net?

    How old are you? Will you be taking the pension in 3 years or 30 years?

    All things you need to consider.
  • Trentenders
    Trentenders Posts: 1,268 Forumite
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    edited 2 March 2018 at 10:24AM
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    The gut feel of most people on a money saving website will be to pay the mortgage. The most sensible thing to do is likely to up your pension contributions.

    Few questions:

    • How old are you?
    • What tax bracket are you in?
    • Do you have emergency savings (cash or liquid assets)?
    • What is your mortgage rate?
    • How healthy is your pension, what other investments do you have, etc.?
    As a third option, if the mortgage rate isn't too high and you can save at a higher rate (current accounts, regular savings, etc.), then that would be a better option financially. A stocks & shares ISA would also likely be better for you over the long term.

    I'd suggest taking a look around the Pensions Board for similar discussions.
  • Keep_pedalling
    Keep_pedalling Posts: 16,622 Forumite
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    You should definitely post this over on the pensions board, lots of experts there, but as the above posts, you need to provide more info.
  • Happier_Me
    Happier_Me Posts: 563 Forumite
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    Since turning 40 my focus has very much turned to funding our retirement, despite being committed to being mortgage free. I know our 'number' - the amount of income we want each year in retirement and I know the age at which we want to retire. I also know what we have in retirement savings and the gaps we have to address.

    I still want to be mortgage free but I don't overpay at the expense of my pension savings. It's about finding a balance that's right for you. And if I paid 40% tax I would definitely favour pension savings!

    As others have said, visit the pensions board. Have a read of the numbers thread as a starting point Many of us chase mortgage freedom but what we ultimately want is financial independence...and you can't achieve that purely by overpaying your mortgage.
  • tfn105
    tfn105 Posts: 4 Newbie
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    Seanymph wrote: »
    This is a long debated choice!

    For me it came down to the immediacy of it - if I paid off the mortgage (and saved the interest) it gave me more disposable income to make choices about.

    If you are happy to lock the money away - then pension.

    Why not do a bit of each? Increase your pension payments, but still down pay the mortgage?

    I do a bit of everything
    - overpay the mortgage a bit
    - salary sacrifice a bit extra into my pension (42% tax+NIC relief hard to look over)
    - pay a bit into a stocks & shares ISA

    I am also lucky that I have a regular cash ISA with some money in it. Although rates are poor, it is my emergency money.

    I would find it difficult to pull any one lever the whole way. All of the above items are worthwhile in the long run.
  • Fireflyaway
    Fireflyaway Posts: 2,766 Forumite
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    edited 7 May 2018 at 7:02PM
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    I'd pay the mortgage. Not only are you likely to save more in interest than you would gain interest in savings, it's security. Should something unplanned happen, your home is safe once it's paid for. Once you are mortgage free with no house payments, you will be in a good position to pay even more into your pension or savings. Your home is an investment too. It's likely to increase in value and the option is there to downsize if you need in future.
  • dawyldthing
    dawyldthing Posts: 3,438 Forumite
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    Another for paying the mortgage off. Once it's paid its yours. Pensions ok but look at what we put in compared to what we get pout - it's not a lot. Mine predicts if I carry on as I do now I'll get a grand a year - won't even cover the council tax
    :T:T :beer: :beer::beer::beer: to the lil one :) :beer::beer::beer:
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