You assume they aren't going to tax the f out of pensions when the money runs out!

colleague retired 2 years ago. took his lump sum and db pension. fast forward to March this year. found in his house by his girlfriend and had passed away overnight. goes to show life is very unexpected. enjoy the time you have folks

The psychological benefit of paying off your mortgage early is massive. It’s one of the few investments where you can feel comfortable going “all in” because you’re effectively locking in a guaranteed saving equal to the mortgage interest you no longer have to pay.

You’re also not paying tax on that saving. If the money was sitting on deposit, the interest would generally be taxable, and other investments come with risk and potentially tax as well.

But the biggest thing for me is psychological. Once you see that mortgage balance coming down, it becomes addictive in a good way. You want to keep knocking chunks off it.

In my case, the bank also allows overpayments to be drawn back if needed, so the money isn’t necessarily locked away forever. Until I need it, it’s sitting there reducing the mortgage and saving interest. That combination of certainty, flexibility and peace of mind is hard to beat.

Three problems with pensions.
1. You can die before getting anything
2. When you get the pension, you are old (i.e. no longer young)
3. The UK government will (soon enough) use your big private pension pot against you, and not provide you the state pension.

Another thing to take into account is that mortgage rates can increase steeply you can end up servicing a much higher debt which cancels out your ability to pay into the pension whilst risking problem in the life you are living now because you have debts you cant cope with to maintain the roof over your head-

Being unable to be evicted from your house is priceless. No one can mess with it. Also whilst the interest rate might not continue to decrease beyond 60%, your monthly commitments can still go down if you maintain the term length. Making years of interest disappear is key!

That's why we put £500 every month towards extra mortgage payment between me and my wife. So none of us are out of pocket. That takes away 6 years within one years from our 27 years

10:46 if you start at 80%LTV and chip away to 60% ltv, your mortgage lender doesn’t kindly drop you rate. You’d have to transfer or remortgage onto a sub 60% product. And even the new rate might not be as good as the one you’re on.

This makes so much sense!!! I love it, it also changed my plans for both savings and the overpayments we do.

The issue is can you trust the Government not to tinker with the lump sum, I certainly don’t.

I've watched so many of these Mortgage vs Pension vs ISA videos, and they all come to this similar conclusion i.e. pay more into your pension, but at the age of 45, and having been in my house for just over 10 years, I sure wish I'd overpaid on my mortgage from when I first moved in. I've been overpaying now for the last 6 months and I can't wait to clear it!! I just see it as a huge burden now that needs getting rid of.

Really useful. Hadn’t considered the cost of overpaying as a higher rate taxpayer (as I am) . Thanks for posting

Great advice, easy to understand. Thank you.

My strategy has us now owning approx 42% of our home. Im a higher rate tax payer but ive shifted to putting spare cash into a stocks & shares ISA to help bridge the gap to enable me to retire earlier.
I do this still while commiting a healthy chunk to pension each month...the model of solely focusing on your pension means a retirement age of 57 and my goal is to try and beat that!

I am already following this approach. I never overpay,  instead put the money in my SIPP and then put the money ( 1.4 times ) in 10 year gilt at the prevailing rate ( 4.5% or so ).

Fantastic video, great that you have covered it from this angle as well

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Interesting video but it all comes down to attitude to risk, whether you wish to own your home outright, and your personal goals and how quick you wish to get there. Age is a big factor, in my forties now and I don’t mind putting in my pension as I’m closer to retirement. In my twenties I felt overpaying mortgage gave me a bigger advantage.

I also looked at the interest saved based on total overpaid based on various scenarios to decide whether to overpay a longer mortgage with lower rate, or a shorter mortgage with higher rate. I.e overpaying for one year gave 1:1 ratio of interest saved over the mortgage compared to amount overpaid. Overpaying the life of the mortgage, the interest saved dropped to 50p per £1 overpaid. I ended up down a rabbit hole with that one!

I also worked out how much I could invest using the mortgage and overpayment from the date the mortgage paid off early to the end of the original term.

I also aim to contribute a percentage equal to half my age into pension in total. This therefore ratchets 0.5% each year.

I think the table at 9:20 could be misleading.

For the mortgage the numbers given are the pre tax income needed to pay £500 of mortgage.

For the pension the numbers are the post tax income foregone to pay £500 into pension.


This comparison double counts the impact.  A fairer comparison would be to either stick to pre tax income cost, or, probably more usefully the take home income foregone. In this case for mortgages this would be £500 for all options.

Take home is a good comparison as it is the amount that could be available for Investment elsewhere.


Also, and more difficult to estimate, is the tax due on withdrawal from the pension. As in reality paying into a pension does not mean the income is not taxable, it's just taxed later (and for most people at a lower rate).


The general point the video is making is useful though, and certainly something to think about before overpaying.

Good advice, except
1. Don’t take the 25% lump sum, it’s not tax efficient;
2. As a consequence, don’t overpay or clear your mortgage with that lump sum, just continue as usual;
3. There is an argument to be made that if overpayments are not optimal for you (e.g you are a higher rate tax payer), then is there a part of your normal payment that’s not optimal either? Most likely yes, that’s why you should consider taking a mortgage for a longer term, (or even an interest-only mortgage but this requires discipline and is really for high-earners).

Essentially the ideal situation is to max out your pension allowance, max out your ISA allowance, see what’s left, then take a mortgage that you can pay with the leftovers.