Should I overpay my mortgage and stop paying into my pension or Investment ISA?

Please be aware the below blog is older than 12 months, therefore the information may not be relevant or up to date.

This is something I’m hearing a lot lately. In a Nutshell - No No No! Unless you are investing low risk, it is unlikely the long-term interest rate will be higher than long term investment returns.

If they were the same; the outcome between an Individual Savings Account or ISA and overpaying your mortgage is pretty much the same.

In the case of pensions versus overpaying your mortgage, the pension will always win even allowing for Basic Rate Tax being paid when you drawdown during retirement. If you’re a Higher Rate Tax payer or Additional Rate Tax payer you will always be miles ahead with a pension, due to the tax relief you obtain on the contributions.

If it’s a workplace pension and your employer is contributing as well the overall difference can be huge.

Yes, the world is a bit upside down today, but you are investing for the longer term not just the next few months or even years. If you continue to invest month on month throughout this downturn you are buying more units/shares per £1 invested than you did the previous month. This means when growth returns (as it probably will) you will benefit, just Google ‘pound cost averaging’.

The only day that matters is the day you need your money and do you need it today?

As Warren Buffet said; “Be fearful when others are greedy and greedy only when others are fearful.”

If you have any questions on any of the points raised, please get in touch with the Ginkgo advice team and we will give you detailed and individual advice to assist you in these volatile times.

By Daren Wallbank

The value of investments and the income they produce can fall as well as rise. You may get back less than you invested.

Tax treatment varies according to individual circumstances and is subject to change.