Decisions in old age...

[Onthebrightside]

If you had the choice to pay 25k off your mortgage each year or put 25k into a pension - which would you do? Your 60 years old, your pension has just 50k in it at the moment, but your mortgage is only 200k?

What would you do?

 

[fisicx]

Probably a combination of both.

 

[Onthebrightside]

Mmmm, I don't think thought the pension is ever likely to amount to enough to give a good living, whereas if you cleared the mortgage and then perhaps focused anything you had after that on a pension... it's certainly a quandary many will have I think.

The thing is if you fall ill or such and you can't pay your bills most suppliers will normally work out some sort of deal with you, but if you fall ill and can't pay your mortgage - well... I think after 3 skipped payments they might start default proceedings.

It's been interesting to get peoples views on what they'd do.

 

[Mark T Jones]

Personally i paid off the (BTL) mortgage

Not sure if it's the most tax effective, but the idea of debt-free income appeals

 

[UKSBD]

Personally i paid off the (BTL) mortgage

Not sure if it's the most tax effective, but the idea of debt-free income appeals

I did the same, it was only a small one - about £50k, but when my 2.3% fixed rate finished and the rate, I was moving to was going to be 9.2% I decided now's the time to pay it off.

 

[Onthebrightside]

Yeah, I think I agree, with so many mortgage rates going to be sky high, paying off as much as you can on the mortgage each year does seem appealing.

I also agree, probably not the most tax efficient thing to do, however, I reiterate - if anything happens and you miss 3 mortgage payments I think most mortgage suppliers will start proceedings. It's not nice to think of but being homeless in old age isn't great!

 

[UKSBD]

Also bear in mind, if your current mortgage is on a fixed rate, they probably only allow you to overpay by a certain amount each year before imposing penalties.

I could only overpay 10% during the fixed term period and could only pay it off after that finished.

 

[fisicx]

We did the sums and overpaying annually with penalties was less than the interest paid over the same period. Also offset by the interest we earned from the savings account. Bit of a win win

 

[Onthebrightside]

We did the sums and overpaying annually with penalties was less than the interest paid over the same period. Also offset by the interest we earned from the savings account. Bit of a win win

Apologies for being dim witted. So, you found that paying more off on your mortgage, even with the penalties, was better from an interest point of view than just paying the normal amount over the standard period of the mortgage? But how did that earn you more in your savings account?

 

[fisicx]

We put money aside each month in a high interest account. At the end of the year after the interest was paid we used the money to pay off a chunk of mortgage.

The earned interest was about £100. Overpayment charge was about £80. This saved us nearly £500 in interest on the mortgage in the following year.

This also means more of the principal is paid off so the repayments reduce. Over the years it’s gone down from £800 to now £200.

 

[Onthebrightside]

@fisicx Thank you for the explanation, it's clear to me now and a fantastic approach to it.

I feel I'm definately erring towards paying off the mortgage for all the reasons stated above.

Additionally, as I look around the subject it seems to me many people feel that, within years, the state 'pension' will disappear and be replaced by a 'credit pension' entirely. i.e. rather than drawing both your state and personal pension, you personal pension shall be topped up only if you are below the threshold c.£879.

The view of the world seems to be that pensions have it too easy. I wonder though if this generation will feel the same when they reach old age and find out they've wiped out all their financial support.