Overpay Mortgage or Increase pension

[Nogoodatnames]

When I get back to Normal budgets after Covid I will have £475 per month after all bills discretionary spending etc.

I currently have that split £100 mortgage overpayment. £375 savings. I don't really want to reduce savings too much as I need to get some work done on the house and want to have the cash if I need to do any of it at short notice. Also need to build my safety buffer. my dilemma is am I better to overpay mortgage or increase pension contributions. I currently have 11% going into pension and have just taken out a 22 year mortgage ending when I'm 69. I can increase pension in steps of about £30 net a month. Current pension pot was about £150k pre Covid. So ok but not fantastic.

I'm torn between overpaying to reduce size of mortgage for when I need to renew fixed rate or putting more in pension so it has time to grow........

I'd weight it more heavily towards the mortgage but I'm not a pensions expert. Have you looked at the mortgage overpayment calculator on the Money Saving Expert website? It's surprising what a difference even a small over payment makes to the total amount of interest you'll pay over the life time of the mortgage.

www.moneysavingexpert.com/mortgages/mortgage-overpayment-calculator/

If you pay into your pension does your employer match it?

You get tax relief on your pension so your money works harder for you. But you'll pay tax when you draw it.

However the 2 things aren't mutually exclusive. The extra money that you'll put on your mortgage will lessen the payments so you could potentially retire earlier if you pay your mortgage off.

Also your property is a savings pot in itself if you later downsize.

Depends what tax you pay (what band are you in?) if you are a higher rate tax payer then pensions are a very tax efficient way of saving long term however reducing the interest charges on a mortgage will help you greatly long term too.

Money in your pension pot is tax efficient and could be matched by your employer so that's essentially free money. That said, over 22 years even a small overpayment can make a big difference. I'd go for 70/30 pension/mortgage if I was your age - but I'm no financial expert!

I don’t think your pension pot is great but what are the projections for the next 20 years? Will it cover the mortgage if you retire? Are you self employed? If so, no employer contribution! Tax relief at the moment though. If you need to overpay your mortgage, is this because you cannot afford to retire and have the mortgage?

Without being a doom monger, are you likely to inherit any money? Ever? What about any plans for downsizing? If so, when? Is your job safe? Lots of things to consider but you need to do your sums, think about when you want to retire and try and look at projected income after retirement and whether that meets your needs.

Tax relief makes it probably more efficient to put money into a pension, plus you'd hope that investment growth will beat your mortgage rate, if you have just taken it out, the interest rate should be very low, under 2%?

However, it sounds like you're building up a decent pension, so be aware of saving far more money than you could ever spend, at the expense of living and paying your outgoings now, although you could always look at retiring earlier.

You're the same age as me and I'm hoping to retire at 60 as I will have a small legacy pension that pays out then and I'm saving to bridge the gap until the rest of my pension and state pension kicks in at 67/8. All being well, mortgage will be paid off in the next 5 years or so but I'm not rushing to overpay as interest rate is under 0.5%.

The days of saving thousands by overpaying your mortgage don't really apply now, unless you're on a really uncompetitive deal and in that case you'd be better remortgaging onto a decent deal and then saving or investing elsewhere.

Most mortgages won't let you overpay more than 10 percent per year without penalties. Worth checking what this figure is. Usually from the statement date to, for example 1st January

Thanks for all the comments. They are exactly all the things I'm going back and forth on.

To answer the questions

I'm a higher rare tax payer - job should be secure for at least 5 years
Work contribution is set so mine makes no difference to theirs
I could not afford mortgage in retirement so would need to downsize or have it paid off by then. Downsizing could free up £150k maybe based on today's properly values
Inheritance is probable but cannot be guaranteed - what if care home is needed etc so don't feel I can make that assumption in any way.

I veer towards mortgage - I think because due to divorce and buying ex out to remain in family home it's far larger than I like so it makes me feel better to see it go down. But I want to ensure I Don't focus on that to the detriment of future me!

Oh and mortgage rate is just under 1.5%

Pension definitely. Tax efficient and compound interest.