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Helpful ReplyHot!Pay off mortgage or increase pension?

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ANIMAL
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2018/08/07 09:08:11 (permalink)
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Pay off mortgage or increase pension?

Next month I will have paid off all my unsecured debt (loans and credit cards) this will free up a good chunk of spare money.

I don’t have a great pension at present as I opted out of the final salary one a few years ago to free up money to buy our house. Only recently started paying more into the statutory one of 2% and have increased it to 5% .the pot is not big at all and is estimated to pay out 30% of my current salary when I retire.. not great at all! I’m 34 so hoping still have some time left to sort this out.

I did a mortgage review and with the surplus money I’ve freed up I can reduce our mortgage from 27 years to 10 years if I make overpayments. Having no mortgage to pay sounds very appealing.

What would be my best options? Pay off mortgage as soon a possible, free up more money and then look to sort retirement out or increase work pension now / invest in another pension or similar and not pay mortgage off as soon? Trying to do research on pensions is a nightmare. Any other type of investment worth looking into ?

Any advice appreciated .
#1
teapot
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Re: Pay off mortgage or increase pension? 2018/08/07 09:58:45 (permalink)
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are you a higher rate taxpayer, near any thresholds etc?
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ANIMAL
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Re: Pay off mortgage or increase pension? 2018/08/07 10:06:45 (permalink)
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No, standard rate tax and not near the top of the bracket.
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doc
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Re: Pay off mortgage or increase pension? 2018/08/07 11:08:49 (permalink)
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teapot
are you a higher rate taxpayer, near any thresholds etc?


either way id pay or mortgage , know where your coming from but pension could go to zero at any point and IR's are rising for mortgages .
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billy2shots
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Re: Pay off mortgage or increase pension? 2018/08/07 11:24:50 (permalink)☄ Helpfulby ANIMAL 2018/08/07 21:40:01
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I've been toying with this subject for the last few months. I've got savings that in a couple of months will equal my outstanding mortgage.

I have been driving myself mad trying to decide whether to clear the mortgage or invest in bonds, ISAs or pensions.

The conclusion I've come to is I may never see pension age so to invest more than I currently am into it may never reap any rewards. I will also have property to sell to boost my current pension pot.
Investing in stocks and shares ISAs interest me but I'm quite risk averse.
So , without being the most glamorous or exciting thing to do I'm going to pay the mortgage off. Once clear I will drip feed monthly into a s&s portfolio.

Paying down or clearing a mortgage may not be the most efficient way to save/earn money but there is no substitute for the psychological feeling of getting rid of that ball and chain.

If I were you I would hammer the mortgage for all its worth. Work out what you will be saving in interest payments over the years and you will find it tough to find guaranteed returns similar to that amount. Yes pensions might be the most tax efficient way to invest the spare cash but you have over 20 years before you can even think about seeing those returns.
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SeanR
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Re: Pay off mortgage or increase pension? 2018/08/07 11:26:14 (permalink)
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I was in a similar position.
 
Focused on shifting the mortgage mainly, but put an extra £125 away each month in my own separate account.
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The_Lone_Wolf
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Re: Pay off mortgage or increase pension? 2018/08/07 12:07:18 (permalink)
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I would pay the mortgage mate, because once that is done you have a bit more security... And hopefully free cash to invest.
 
Pension age is a long way off, and I would look to pay off debts now. Regardless, you're investing in a future, but also the families. 

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IWantedDanB
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Re: Pay off mortgage or increase pension? 2018/08/07 15:53:51 (permalink)☄ Helpfulby ANIMAL 2018/08/07 21:40:13
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There is no single answer to this, as it depends on multiple factors.
 
Tax brackets (already covered)
What interest rate is your mortgage at?
What interest can you earn from savings and investments?
 
If your mortgage costs more than you can earn with the money elsewhere, pay it down.
If you can earn more elsewhere than the mortgage costs you pay the minimum needed to service the mortgage and invest the surplus elsewhere.
 
The key is to be disciplined, only invest at appropriate risk profiles and don't be tempted to use the money on a flash car or similar. If you are the type of person that cannot do this, just pay the mortgage down.
 
As an example, I had a mortgage I took out a while ago, that had BoE base rate + 0.75% as it's SVR. I now no longer need this mortgage, but I use the outstanding balance to invest in other areas, as I can return more from this than paying the mortgage costs me. Eventually, if and when rates increase too much to make this feasible, I will just pay it back. The point being my actions depend on circumstances at the time.
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newcastle
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Re: Pay off mortgage or increase pension? 2018/08/07 15:54:21 (permalink)
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Treat it as any other debt, definitely pay it off first.
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Big Block
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Re: Pay off mortgage or increase pension? 2018/08/07 16:55:11 (permalink)
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Yes, get that mortgage paid off if you can.
 
I'd worry about the uncertainty of a pension. At least if you know your mortgage is paid off your cost of living goes down drastically.
 
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ANIMAL
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Re: Pay off mortgage or increase pension? 2018/08/07 21:43:43 (permalink)
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Thanks everyone. Looks like the mortgage will be the priority. If I clear it early in my projected timescale I will save £58k in interest!
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SeanR
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Re: Pay off mortgage or increase pension? 2018/08/08 04:22:15 (permalink)
+1 (1)
Good luck with that Animal, it can be difficult but all the effort pays off in the end.
 
There was three or four times I had to borrow back, and im still paying back the last one. You need money, car, wedding or whatever and see the words "available credit facility". Far easier and cheaper than borrowing elsewhere, then off on one goes again.
 
That's my only issue with it.
 
 
 
 
#12
Brett
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Re: Pay off mortgage or increase pension? 2018/08/09 06:59:34 (permalink)
+1 (1)
Good choice mate everyone making sense above.
 
I will only add be sure to shop around with your interest rate. I switched banks 1.5 years ago. It did cost me $1800 to switch at the time but I made all that back within a year with the reduced interest rate.
 
 
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GOVINDA
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Re: Pay off mortgage or increase pension? 2018/08/09 10:23:20 (permalink)
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Big up yourself man, I’m jealous of folk like you who have did well in life financially but in a good way, I’ll be fuked when I hit retirement age due to giving up life to parent the spawn of Satan, can foresee a park bench and a brown paper bag in my final days 😏, anyhoo to answer your question, I advise enjoying your cash, take full advantage of it while you can *inserts havamal quote* etc etc

Alt er mulig
#14
ANIMAL
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Re: Pay off mortgage or increase pension? 2018/08/09 10:55:33 (permalink)
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Brett
Good choice mate everyone making sense above.
 
I will only add be sure to shop around with your interest rate. I switched banks 1.5 years ago. It did cost me $1800 to switch at the time but I made all that back within a year with the reduced interest rate.
 


I’m on a fixed rate for another 2 years and then yes will def be shopping around.
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ANIMAL
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Re: Pay off mortgage or increase pension? 2018/08/09 10:58:55 (permalink)
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GOVINDA
Big up yourself man, I’m jealous of folk like you who have did well in life financially but in a good way, I’ll be fuked when I hit retirement age due to giving up life to parent the spawn of Satan, can foresee a park bench and a brown paper bag in my final days 😏, anyhoo to answer your question, I advise enjoying your cash, take full advantage of it while you can *inserts havamal quote* etc etc


Wouldn’t say I’ve done well. Tbh like you I have up a lot career wise to raise my daughter. Although we only deciddd to have one so expenses aren’t massive. But it’s also taken me good part 10 years to clear my stupid credit cards and loan. Only now in my mid thirties can I start making a dent.

And yeh I don’t suppose I’ll make really old bones what with all the eating and gear ! At least my coffin will be stacked !
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