Overpay mortgage/ISA/pension

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We have a large mortgage due to be paid off in 15 years, but making regular overpayments of £1000 a month which would see it being done in about 10years, possibly less. Not sure if we would be better off paying that into pension or isa due to higher growth vs 1.5% mortgage rate, then using that amount to pay off in lump sums. We are both higher rate tax payers so would benefit from 40% tax rate in pension, but then that money is tied up and there is risk associated with it. At least with paying directly into the mortgage we know we are definitely reducing that liability.

DP already making AVCs for retirement, I probably need to start this as well as my pension scheme is changing soon (down grading), but still expect to be able to make the £1000 payments. We save £200 per month into ISA currently and any left over money at the end of the month.

Any thoughts on whether we should directly pay off mortgage or save elsewhere?

Do you need to build up a nest egg to fund any gap between retiring and getting a pension? I’m hoping we can retire a little early, so for us we are thinking of splitting any money between mortgage and ISAs.
That said, I suspect mortgage interest rates will go up which isn’t great with a large mortgage.
You could just split it between mortgage and pension….? Diversification and all that….

If it were me, I would max out what you can contribute to ISA and pension contributions before paying off low interest mortgage debt. 1.5% interest is so low that you stand to gain a lot more by just regularly investing that money. Over a 10-15 year period, the tax free compounding interest you would accrue in would definitely outstrip the interest you would be saving by paying off your house 5 years early. Also, keep in mind that your home equity is both theoretical (based on current house prices) and illiquid until you sell, and your house price could drop in that time (just like stocks and shares can in an isa or pension). I think that the ability to easily liquify assets from something like an ISA is worth a lot in this kind of global environment with things going a bit haywire.

Definitely pension. Any money taxed at 40% is wasted on a mortgage.

Good points re illiquid nature of house value. I am wondering if we chucked as much into pensions as we could, if we could then use tax free withdrawal in say 10 years time to pay off a remaining chunk of mortgage. But then I don’t know how Kong we are going to keep working, and how accessible the pension would be.

Might be better splitting the overpayment between pension and isa with view of earmarking the isa for the mortgage in say 5-10 years. It will have hopefully have grown by more than the 1.5% interest we would have saved on mortgage.

We paid loads into our pension, it’s worked out really well and retired at 52 and 55.

If you pay hi tax rates I would have your house and salary run through a business so you pay less tax - as house prices will flatten paying into Isa and other investments is a good call

@user1471464702 care to elaborate?

@user1471464702

Me too, I'm also keen to understand what you mean