Got a bit of spare cash left at the end of each month for once - probably not for long, but right now and perhaps for the next few months while work is busy (I'm self-employed). Probably only talking a couple of hundred quid, realistically. Is it generally a good idea to overpay on a mortgage as a way of saving some money long term? We have 15 years left on the house, on a 5-year fixed rate mortgage, with the option to overpay up to 10% each month. Is it a no brainer to overpay, or are there wiser (simple and low or no risk) things we could do. I also (probably urgently) need to start a private pension (very much a case of better late than never). No idea where to start. Ta for any tips on either the mortgage or pension thing.
Personally I wouldn't overpay at the moment. If you have a good rate on the mortgage then you should be easily able to beat it with investment (I'd go for stocks and shares ISA via a fund). I think this works well for the self employed. For me it means I have a reasonable chunk of accessible savings that are there for a rainy day if work takes a downturn, or tucked away to form part of my pension if I don't dip into it. That said if you are a higher rate tax payer then you'll be better off putting it into a pension but it will be locked away.
I'd talk to an IFA.
Pensions are a good way of getting a tax free investment (ie. you can claim back tax paid on contributions).
Overpaying a mortgage can be a good thing (but check when they calculate interest - some do it annually so overpayments don't reduce interest in year they're paid). Hose prices are (generally) rising faster than returns on othe rinvestments but who know for how long and unless you plan to sell house to fund a pension later then waiting until mortgage paid off until you start a pension may not be a good idea.
Cheers for these. Just to clarify - we're really not talking big sums here - let's say a couple of hundred spare each month. I'm not in a high tax bracket - I choose to work part time and earn a modest income. Thanks again.
you'll still get £20 tax back for every £100 you put in a pension. It adds up over time.
A small regular amount is a good way to invest into a stocks and shares ISA. That spreads the risk somewhat.
Correction, you will get £25 for every £100 (unless something's changed recently). ie the £125 comes out of pre-tax income which you'd only have seen £100 of.
It really depends on circumstances. without knowing more its difficult to advise. As an example i have a fixed rate on my mortgage which is extremely low. I dont pay more than I have to but instead invest in an ISA and a SIPP each month. I have a company pension which I only invest enough to get the maximum contribution from my employer.
Both my SIPP and ISA are invested in funds which have done quite well over the last 8 years and I claim back tax on my contributions to the SIPP. Being self invested my investments are much better than my companies choices.
If my Mortgage was higher rate I may focus on paying that off instead so its really quite unique to you and your attitude to risk.
Have u any gaps in state pension years you can buy, gap years once out of the payment window do not qualify again. I think u can go back 7 years.
I reckon it's the best thing i ever did, effectively a final salary pension with low payback.
Future bike slash bike trip fund Shirley?
If you are under 40, consider a Lifetime ISA. You won't get 25% relatively risk free anywhere else.
Mortgage calculator if you want to check the impact of altering payments
https://docs.google.com/spreadsheets/d/1cLH5NU8s4ghbiB7wlc_a1obAcjXdY59TZuW5jhStqjc/edit?usp=sharing
There was a lengthy thread on this a few months ago. I would overpay upto the max on your mortgage; there are simple to use overpayment calculators online. From your post there appear to be two considerations - your ability to overpay may have limited duration and your mortgage provider caps your overpayment at 10%.
I know what I would do but - each to their own.
Bank it for 6-9 months and then make a decision
Premium bonds could be an option until you are ready to decide
We over payed ours for quite a few years and we coud get overpayment back within 3 days.
So we saved on interest and if we needed money we could get some in a hurry. Nice to get the mortage out of the way .
If u run the premium bond holding values through the mse calculator it reckons 1k with avg luck does not win anything. All to do with prize size and the 1.4% pay out rate.
Be aware premium bond winnings are tax free 1.4% so compare that with your interest saving.
I've found my stocks and shares ISA a bit rubbish but its been a rubbish time for stocks and shares so that's no real surprise. It does mean I'm less inclined to add more to it.
Some overpay mortgages give the option to borrow back that overpayment, so if you suddenly need it, it becomes a cheap loan. Pension isn't going to give you that option.
I’ve found my stocks and shares ISA a bit rubbish but its been a rubbish time for stocks and shares so that’s no real surprise. It does mean I’m less inclined to add more to it.
Mines up 10% since Jan and averaged 20% per year over the last few years so I'm the opposite. Far better to stick money in there than pay off the mortgage for me.
Mines up 10% since Jan and averaged 20% per year over the last few years so I’m the opposite. Far better to stick money in there than pay off the mortgage for me.
whilst stocks are currently doing better than 'cash', its worth baring in mind what happens when you're in a falling market - inside a year in 2008 the FTSE100 lost 40% of its value - if you can afford that then the gamble is worth it but lots of folks can't.
If Self Employed like me, you’ll want to not tie the spare cash up. Invest it, but it needs to be readily available when needs must. A stocks and shares ISA may not be the best investment for a potential short term approach. S&S generally make more money after a decent passage of time, and depend on the type, how much effort your going to put in etc. You’ll have think about exit fees and possibly dividend tax. S&S ISA’a are good, mine is about 12% over about 3 years. But you have to think about your overall financial situation.
Paying into the mortgage while not a bad idea, ties the money up. There won’t be any benefit when or if money dries up.
As mentioned above, I’d just bank it for now. It won’t make you money, but it’s there should you need it. If you don’t need it in 6 months and are confident that you won’t, then invest it at that stage.