Overpay mortgage or pension?

[Amibeingdaft81]

38. Single parent. 2 children. £40k a year but work part time so £24k. Generosity maintenance from ex plus benefits. Good evening prospects in future.

I have saved up a nest egg but I don’t want to keep the full nest egg as not doing much. Isas are full.

Current economic climate - pension or mortgage?

We are only talking £5k here

earning

What rate are you paying on your mortgage? I’m sure someone who knows much more than me will be along soon but I’m not overpaying the mortgage at all at the minute as we have a really low rate fixed deal so I’m getting bigger interest elsewhere by saving.

5 year fixed (4 to go)
2.09%

@PinkDaffodil2 - have you looked at the mortgage overpayment calculator? You can save a fortune by overpaying even a small amount, rather than putting into savings.

I've overpaid by around £300 per month for the last two years and if I continue to do so, then it would end up taking six years off the mortgage term and would save £10,000 in interest (even at very low rates). Unless you're earning in excess of £10,000 interest on your savings, which would be pretty difficult in this climate, then maybe think about overpaying?

Calculator is here: www.moneysavingexpert.com/mortgages/mortgage-overpayment-calculator/

OP - I don't know the answer to your question, as obviously the impact of compound interest over time is beneficial, as is the reduction in interest on a mortgage. Maybe play around with pensions calculator etc if you have access to one, and then compare to the above overpayment calculator and see which makes financial sense.

Brilliant calculator thanks

Overpayment it is!

Could you do both? Payments into a pension earlier on have longer to grow, and benefit from compounded interest.

If you have a fixed rate mortgage there is likely to be limits on how much you can overpay (usually 10% of something that I can't remember - will be original amount or outstanding balance) so check this.

If you put money in your pension you will get tax relief and it may grow at more than 2.09% - you'd hope so, but dependent on what type of pension it is and not guaranteed if linked to stock market.

So pension might be a good choice, or you could look on Moneysupermarket for a fixed rate saving product that pays more than your mortgage, to keep your options open. Obviously consider your personal savings allowance of £1000 of tax free interest per year, but if your money is in ISAs, you're probably not at risk of exceeding this.

For me it is mortgage every time. I can work all the hours god sends to build pension when I have cleared that, without worrying I'll lose the roof over my head whatever happens.

There might be marginal gains or losses, but with interest so low, it's worth more for my own satisfaction.

I’m paying 1.19 on the mortgage and getting 1.5 on savings (few hundred a month getting 5% on regular saver) so putting the overpayments into the savings, then will pay it all into the mortgage when the fixed rate ends. So I guess we are overpaying as being disciplined about putting the same amount aside each month just squeezing a few extra £ interest in the short term.
That calculator is great though - I’ll have a play :)

@BarbaraofSevillle makes a really good point about tax relief on pension contributions - HMRC will add 20% onto what you put in, it's 'free money', definitely something you should factor in.

That calculator is great though - I’ll have a play

They are really motivating for me. (Notwithstanding changes in circs) I'm planning to pay off my mortgage in a less than quarter of the time of the full term; and save tens and tens of thousands of pounds interest.