Extra money each month - Pension or mortgage?

[Matt..]

I have some additional pay coming in each month and wondered whether to put some into my pension or mortgage overpayments?

Which is generally the best to go for? (i'm 31, and have 24yrs left on the mortgage. current pension contributions are 3%).


Any thoughts would be appreciated.


Thanks

[BoRED S2upid]

Mortgage IMO clear debts first and your mortgage is a 24 year whopper. Loads of calculators online to show how much you save in interest with only small overpayments.

[theboss]

Depends on your marginal tax rate - if 40% or more I'd stick it in the pension and get full relief whilst you can.

[Matt..]

BoRED S2upid said:

Mortgage IMO clear debts first and your mortgage is a 24 year whopper. Loads of calculators online to show how much you save in interest with only small overpayments.

I already overpay the mortgage slightly (10% extra on the monthly).

I'm somewhat tempted to do half pension and half mortgage. So ~20% extra on mortgage payment each month and ~4% of pay on pension.

[Matt..]

theboss said:

Depends on your marginal tax rate - if 40% or more I'd stick it in the pension and get full relief whilst you can.

I'm not in that bracket.

[Simpo Two]

Do the maths projected over 24 years. Which is better in the long run?

Remember that your mortgage is a fixed animal; with a pension anything could happen.

[CorbynForTheBin]

Does you employer match pension contributions?

[Willhire89]

Mortgage first....

Imagine a life without a mortgage outgoing - the sooner you can clear it the better. Over 24 years it amounts to a massive outgoing and one full month overpayment at this point per annum will knock years off the end date.

[CarlosFandango11]

If you don't have much in the way of cash savings, it worth thinking about building some up.

[supersport]

Pension, 3% is not enough, and you will gain an instant 20% return on it. If paid by salary sacrifice even better.

[Simpo Two]

supersport said:

Pension, 3% is not enough, and you will gain an instant 20% return on it.

How many percent is the interest paid over a 24 year mortgage?

[sidicks]

Simpo Two said:

How many percent is the interest paid over a 24 year mortgage?

They decision factor will be to compare the cost of the mortgage (interest rate) compared to the expected return (after tax relief) on the pension contribution.

The latter is likely to be higher which would suggest paying into the pension, but there is clearly a (big) risk that that expected return is not achieved.

[Matt..]

My employer doesn't match contributions.


My current thoughts are that splitting it between pension and mortgage is a good idea.

[supersport]

Simpo Two said:

supersport said:

Pension, 3% is not enough, and you will gain an instant 20% return on it.

How many percent is the interest paid over a 24 year mortgage?

You would assume that it would range from .5% to 15%. But you only get that on the over payment, and that is tax free of course. The danger is that you concentrate on over payment at say 5% - 7% and in 18 years time you don't have long enough to invest before retirement.

Putting into the pension now is at minimum 20% and hopefully more with returns and enough time to ride out the troughs. Of course paying your mortgage off early seems like a big win. I would split between the two, but 3% contribution is way below what is adequate.

You need to work out what you need to live on, that tells you what size pot you need, and roughly divide by the number of years to go before retirement.

[bogie]

Get your pension contributions up when you are young and it will save thousands later. The mortgage is the cheapest money you will ever borrow in your life. Sure if mortgage rates were 10% then Id be wacking that off first, but they are not. I do overpay mine, but thats an age/goal thing. I want it paid off by 55 so have the payments calculated to do that.

Have a play with a pension calculator here, its quite sobering. Also its quite conservative, after the over selling of investments in the last 20 years it estimates on the safe side. Really its the later years where compound interest really does it thing. The sooner you start the pension the better ....

http://www.hl.co.uk/pensions/interactive-calculato...

[BoRED S2upid]

Matt.. said:

My employer doesn't match contributions.


My current thoughts are that splitting it between pension and mortgage is a good idea.

Sounds a sensible idea especially if your employer isn't matching your contributions, check how much you can overpay on the mortgage some only allow 10%.

[Matt..]

BoRED S2upid said:

Sounds a sensible idea especially if your employer isn't matching your contributions, check how much you can overpay on the mortgage some only allow 10%.

When you say 10%, it's usually 10% of the remaining balance. Which is quite a lot with 24yrs left!


Currently still thinking of upping mortgage overpayments to 20% and doing 4% salary sacrifice pension.

I have aims with the mortgage of getting it to a certain figure within a few years, so i'd like to try and hit that. I also need to start investing soon, but that's an entirely different thread i guess!

[Steffan]

Matt.. said:

BoRED S2upid said:

Sounds a sensible idea especially if your employer isn't matching your contributions, check how much you can overpay on the mortgage some only allow 10%.

When you say 10%, it's usually 10% of the remaining balance. Which is quite a lot with 24yrs left!


Currently still thinking of upping mortgage overpayments to 20% and doing 4% salary sacrifice pension.

I have aims with the mortgage of getting it to a certain figure within a few years, so i'd like to try and hit that. I also need to start investing soon, but that's an entirely different thread i guess!

Interesting conundrum. Paying the mortgage off ASAP is almost certainly your best bet. Interest rates will not stop at these levels for long. The pension is a good Idea but not owing any money to anyone and owning your own home outright is better. Must be the safest choice, I think. You have control throughout. Best of luck to you: nice to see someone actually having a concern for their later years!

[ringram]

Google is your friend

http://www.iii.co.uk/articles/16114/it-better-top-...

http://www.thisismoney.co.uk/money/pensions/articl...

http://www.telegraph.co.uk/finance/personalfinance...

[Welshbeef]

So assuming you retire at 65 you have 34 years left to pay off mortgage and generate enough pension to have the lifestyle you desire.


Question in £ wise how much is this extra? Is it guaranteed more or less every month?

Use the calculators and if you paid that amount in PCM how would it reduce your mortgage term? Currently you have 10 years after mortgage is cleared to create a pension pot - in theory you could pay in the exact amount your mortgage payments were for those remaining years and net net be neutral.

Are you intending on upgrading to a bigger house at some point in the future if so paying into pension will not help you whereas if your not going to leave that value house until you pop yer cloggs then I'd clear the house


Do you have any pension currently if not and you've zero intention of upgrading I'd go the pension route it also gives death in service benefits so your dependants will be covered in such a