Should I prioritise pension saving or overpaying my mortgage?

[lycheesalltheway]

I've just turned 39 and feel I really need to start taking control of my life and would like to put myself in a good position financially.

Just to say, I'm not married and no family so will never inherit anything. I am also a freelancer and my income is not particularly high although I'm working on that, I'm not sure how the next few years will pan out. I may end up having to pivot.

I'd like advice on what is best to do in my situation. I have a LISA with £32k in it and I own my flat that I live in and have £145,000 on the mortgage. At my current salary, it will take me 30 years to pay off probably.

Should I prioritise saving into a pension or pay off my mortgage?

I know no one can answer this but what is a good pension to have to be able to live comfortably? I grew up pretty poor but I'm more worried about the fact that I really will have to rely on myself when I'm older and whether I will be ok.

In theory I suppose you should put money in to whichever has the highest rate of return (so say your mortgage is 5%, are you getting a growth rate higher than this on your shares?)

However, for me it would be the mortgage. I once decided to invest in shares instead of my mortgage and I lost a lot of money because the shares went down significantly. I really regretted not having the certainty of having paid off my mortgage. I've paid it off now, and being mortgage free is great.

I agree.

I'd say it doesn't matter that much which one you do, more important is to start doing something. In all cases it is about interest over the time.

I'd say start today with whatever is the easiest, if your mortgage rules allow principal overpayment without extra fews, it is a good choice.
You can switch to paying the extra into something else (pension or investments) once you decide how do you want to do it.

Life doesn’t always go to plan, and for me having the security of a roof over my head has always come first. I’d go for paying off the mortgage.

Do you have an emergency fund of 6-12 months expenses? As a freelancer I would want the higher end, so 12 months.

Are you a higher rate taxpayer?

Do you have any pension provision already?

U would say split available savings between a S&S ISA and Pension and smaller amounts into Mortgage for now eg: use Sprive or Round-ups.

You need the compounding effect over time for the ISA & Pension, but over time they will outperform mortgage rate savings.

I would suggest that you speak to an Independent Financial Adviser, who will take all your financial and personal circumstances into account and suggest the most suitable options for you. You can pay a small(ish) flat fee for their services and don't have to take out any new policies through them.

I'd very much recommend looking at Rebel Finance School on YouTube. Will give you lots of information to help you decide. I absolutely wouldn't speak to a financial adviser, unless you like giving your money away. You can find it all out yourself for free. Knowledge is power.

Can you pay of some of your mortgage but also try a pay some into your pension.

the younger you are when you put the money in your pension the better, as it has longer to produce returns

but we are often conditioned to paying off debt first, so may of us try to reduce the mortgage debt first before putting money into the pension

so putting money into the pension for the next decade would be advantageous, then look at overpaying your mortgage and continuing to concentrate on your pension would be the logical pattern - rather than worrying about the debt first

I would also agree. Some great advice here. First, make sure you have an emergency fund-if your income fluctuateif your income fluctuates, I would agree with the poster who says try for a year savings. You also don’t have to put all on one or the other. You could split your contributions between the two. Both are good ways of saving for your future. I agree with everyone who puts a little bit more emphasis on paying off the roof over your head first….. anything invested in the market is a gamble. I’ve had some gambles turn out well and I’ve had some turn out badly. Overall, generally, my investments have done well, but it’s never a guarantee.

Also adding if you keep money in an emergency fund and you end up with more than you think you need, you can always repurpose that money into your mortgage or pension at a later date. What you can’t do is get it back if you need it immediately.

You need proper financial advice - but I’d say your pension should be the priority.

I think you would find Rebel Finance School really useful. Google it- it is a free course on YouTube.

I suspect if you just wanted to maximise return you would be best to put it in your pension to give your self as many years of compound interest as possible.

But psychologically, money off the mortgage means paying it off sooner and for me the piece of mind is worth more than a large pension 30 years in the future.

Can you overpay your mortgage by even a small amount each month and then invest the rest? What’s the interest rate on your mortgage?
I prioritised investing and then (foolishly in retrospect) withdrew to pay the mortgage… so I now have bricks and mortar but very little invested and in my 50s and worried about how I’ll survive in retirement without selling the roof over my head. You will benefit at your age from compounding investments over 30 years.
As pp have recommended - Rebel Finance is supposed to be good. Also recommend Meaningful Money podcast and resources.

This

I think it depends how much you put into a pension already, although being freelance does this entirely depends on you? I am on 34k a year and 3% of my wage goes into my pension and my employer puts in 6% so 9% in total but it's adding up nicely as I started quite young (pot currently at about 58k) no idea what this will equate to at retirement and how comfortable life will be. There is no interest rate on my pension though as it's based on shares so goes up and down, but I do know that I pay about £600 a month in interest on the mortgage and my pension doesn't make me £600 a month so I would pay off my mortgage with any spare I had tbh. I have been trying to chip away at ours.

Pension is almost always the right answer in this scenario (financially) because of any employer matching then tax & NI savings.

You need to invest to make use of compound interest. Do you have a Stocks and Shares ISA?

Typical rates of return in investments have historically been around 8-10%. I assume your mortgage rate is around 4-5%?

I’d recommend completing the Rebel Finance course.

rebeldonegans.com/finance/take-control/should-i-pay-off-my-mortgage-or-invest/

Spend some time on the ukpersonalfinance Reddit. Usual advice is to pay the mortgage off just in time for retirement and prioritise putting extra cash into your pension for compound growth. You can also use part of your tax free lump sum to clear your mortgage balance.

The gains on your pension are presumably on a much smaller total amount than your mortgage though? This logic doesn’t really make much sense

You can't beat the feeling of actually owning your own house.

I would say do a bit of both. Overpay a bit and chuck some into a pension

Plan to pay off your mortgage before you plan to retire. Most of the retirement living standards assume no housing costs. If you can reduce your LTV below 60% you will get a better rate when you remortgage. Assume the LISA is for retirement and don't forget to check your state pension forecast.

I maybe missing something here but if you have a mortgage you don't own your property yet