Overpay Mortgage or Start Pension: Advice Needed

Hi folks,

I am a 33yr old with 174k left with 19yrs remaining on mortgage term at a rate of 3.1% with Ulster Bank. I currently do not have a pension and I am looking at the possibility of setting one up.

Married with 2 kids and my own income is 75k gross per annum with my wife earning 50K gross per annum

Should I be;
(A) looking at setting up a pension now and keep mortgage as it is
(B) overpay the mortgage for next 12 years or so and then set up a pension once mortgage has been paid off


Any advice welcome.

Have a look the Money makeover section, you will see lots of threads discussing similar thoughts.

On a high level without knowing too much of the detail, I would suggest:

• Look at switching or fixing your mortgage, you should be comfortably able to get something around 2.4-2.6%
• Start your pension if your employer offers matching contributions and then contribute the maximum that your employer will match
• How old are the kids, if they are very young then I would overpay the mortgage at a comfortable level to you. If they are looking at 3rd level in the next 5/6/7 years, then maybe leave the mortgage as is and focus on having some funds available for that
• Also, some of the above depends on what savings you may already

_OkGo_ said:

Have a look the Money makeover section, you will see lots of threads discussing similar thoughts.

On a high level without knowing too much of the detail, I would suggest:

• Look at switching or fixing your mortgage, you should be comfortably able to get something around 2.4-2.6%
• Start your pension if your employer offers matching contributions and then contribute the maximum that your employer will match
• How old are the kids, if they are very young then I would overpay the mortgage at a comfortable level to you. If they are looking at 3rd level in the next 5/6/7 years, then maybe leave the mortgage as is and focus on having some funds available for that
• Also, some of the above depends on what savings you may already

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Thanks, I will look at this section now. Details below:

-I have switched mortgage within the last two yrs. Currently on variable.
-Employer is not willing to offer anything towards pension contribuitons.
-Kids are 1 and 3. Both in creche
-3rd level- I'm doing a part time degree level 8 in the evenings. Going into year 3 of 4 this Septem
-Savings = 20k
-Car loan 2yrs left 8k left on it.

I agree with _OkGo_ more detail in the Money Makeover template may give more useful responses and that looking at reducing the cost of your mortgage would be sensible.

Using the following calculator (https://www.drcalculator.com/mortgage/) over 19 years, you would pay €56k interest, if you were to overpay by €400 pm (keep the term length but pay more every month) you would reduce your interest paid to €35k. However, that €400 would be after tax income. Putting it into a pension would mean taking €400 of your before tax income. Essentially paying €400 off your mortgage comes at a cost compared to putting it into a pension. Pension investment does have risks but it may be better value in the long term.

If it was me I would favour setting up a pension, the earlier you start planning for retirement, the better.

Big Daddy said:

on variable

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Why, in the name of all that's Holy are you on a variable rate?? You're throwing away money.
2.3% fixed for 2 years, or 2.6% for 4, with the flexibility to overpay 10% of the outstanding balance each year before calculating a break fee.

No reason not to switch or fix as RedOnion has suggested. Big savings on interest, 0.8% of €174k is almost €1.4k in interest saved in first year alone. Option to overpay and should be zero hassle if you stick with UB. Or KBC's 3yr fixed at 2.3% and €3k towards legal costs is another good option for you. They also offer 10% over payment of outstanding balance. Have a look at the CCPC website to compare products and choose what suits you best as some offers depend on your LTV (CCPC mortgage comparison)

Clear the car loan before overpaying the mortgage, no sense paying high interest on that while overpaying mortgage. If you are comfortable dropping savings a little bit, I would clear 4k off the car loan and then just clear it fully in the next 6 months.

You are at an expensive stage in your life with creche fees x2 so don't overly strain yourself on mortgage or pensions but it is sensible to get the ball rolling on your pension at 5% for a few months and then increase your contribution as you see fit and as creche fees and other expenses drop off. Overall you are in a good position with your mortgage only 1.5x your combined salaries

RedOnion said:

Why, in the name of all that's Holy are you on a variable rate?? You're throwing away money.
2.3% fixed for 2 years, or 2.6% for 4, with the flexibility to overpay 10% of the outstanding balance each year before calculating a break fee.

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Thanks for your comment. Can you provide further info on where you saw the 2.3% and 2.6% rates and was this APRC?

Look at Ulster Bank'ss fixed rates on their website https://digital.ulsterbank.ie/personal/mortgages/mortgage-rates.html

Ignore the APRC it assumes you'll take the low fixed rate for X years and then default back to a higher variable (3.5% + ) for the remainder of the term, when in reality at the end of your fixed period you'd either fix again or switch banks for a better rate.

Big Daddy said:

and was this APRC

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APRC is completely misleading in my view (although required) when it comes to fixed rate mortgages. As @Coldwarrior says the calculation must assume that you will revert to SVR at the end of the fixed rate, si it's completely meaningless in a situation where fixed rates are lower that SVR.
Look at the nominal rare. It's clearly lower.

Big Daddy said:

Thanks for your comment. Can you provide further info on where you saw the 2.3% and 2.6% rates and was this APRC?

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Check Bonkers, 2.25 % if LTV <60% with KBC, similar rate with Ulster Bank +€1,500 legal fee contribution. Play around with the figures, and check the “features” of each rate as they vary.

I would also look at the Mortgage Insurance you are paying, this is often an overlooked item.This is particularly cheap, if you go for decreasing life cover, over the life of the mortgage. Certainly worth reviewing, and never take this out-via your mortgage bank, as always better value available elsewhere.

All, thank you for your comments. Much appreciated !!