Should we pay off our mortgage or start saving for our pension? DAVID HOLLINGWORTH answers

My husband and I co-own our house, which still has an £86,000 mortgage to pay off. It has 18 years left and we have one year left on our current fixed rate of 1.69 per cent.

Our property has a capital of approximately £260,000 due to past house price increases and extensive renovations.

We are both 49 years old and work full-time for an average wage. We have no pension apart from the state pension; our only asset is the property. We have a plan to downsize our house once our daughter, who is 10, leaves home to help pay for retirement.

My question is, is it worth trying to pay off the mortgage faster?

We could probably put down a lump sum of £20,000 and make an additional payment of £500 each month. This would mean we could pay it off in six years instead of eighteen.

But would it be better if we simply invested the money in pensions?

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David Hollingworth responds: You are at a point in your life where a number of goals and requirements are competing for priority.

While it may seem like a long time away, you may already be thinking about planning ahead for future costs as your daughter gets older, including higher education.

At the same time, it is not uncommon for one to start thinking about financial planning after retirement.

I’m not a pensions advisor, but it makes sense for you to consider how you’re doing now with your retirement savings and where you’d like them to be.

Taking stock of your current pension pot and analysing your goals will help. There are numerous online resources, such as the MoneyHelper website, which has a comprehensive list of pension plans. pension calculator You can play with it.

A financial advisor can help you understand the possible options to achieve your goal.

All of this, of course, is on top of the standard cost of living, which includes mortgage payments, utilities, travel and other common day-to-day costs.

The good news is that so far your mortgage has escaped the impact of rising interest rates in recent years.

> What’s next for mortgage rates?

No pension plan: While paying off the mortgage is often a priority, paying into a pension could be more beneficial in the long run

Where are mortgage rates headed?

Their fixed rate is very low and clearly must have been set before the interest rate hikes that began in late 2021.

This has provided great insulation from the rising payments that many homeowners have had to face.

With another year left to run on his contract, it makes sense to think about what things will look like when his deal comes to an end.

The Bank of England’s base rate is expected to fall as the year progresses and inflation comes back under control.

Although the base rate is expected to ease, there is no expectation of a return to the ultra-low rates that existed when the current deal was agreed.

The lowest five-year fixed rates for remortgaging customers are still just under 4.5 per cent, which could add up to around £120 a month based on your current mortgage.

So you’re right to want to make the most of the remainder of the current rate to help cope with the higher costs ahead.

Your lender, Nationwide, will likely allow you to make excess payments of up to 10 percent each year without a prepayment fee.

Instead of basing this on the outstanding balance like many lenders, Nationwide will allow up to 10 percent of the original balance to be paid each year without incurring a penalty.

That would give you the ability to make some regular or lump sum overpayments now while your monthly costs are lower, but it’s important to check that you won’t exceed your allowance.

Alternatively, you could consider saving in a savings account with a higher interest rate.

Savings rates are likely to exceed your current mortgage rate and could help you build up a larger lump sum to pay back when you review your mortgage. Make sure you factor in any tax you may pay on the savings interest.

It’s necessary to maintain a liquid cash balance as an emergency fund, but paying down your mortgage more quickly probably doesn’t seem like a bad decision.

> Is a five-year fixed mortgage the best option when interest rates remain high?

Safe for now: Although our reader is currently protected from higher rates by her fixed deal, she is bracing for costs to rise next year when she refinances her mortgage.

Pension vs mortgage

The difficult thing is to get the balance right, as all of your goals are clearly important.

Instead of focusing solely on the mortgage, you may want to spread out your resources.

There are a few key things to consider. You need to make sure you have an adequate cash fund, so you should not use all your spare cash to invest in your mortgage or pension.

Seek specialist advice on where your pension savings stand and what you need to do to achieve your goals. Ask about the advantages and disadvantages of increasing your pension contributions, now or in the future.

Trying to pay off your mortgage faster is not a waste of assets, and I encourage you to try to make progress once you consider what flexibility you have and how you can allocate resources to best achieve your goals.