Using Pension Funds to Pay off Mortgage?

My initial thoughts are that this depends on current and future mortgage rates as opposed to likely returns on the investment!

It depends on mortgage rates and the potential of the investment. If your mortgage rate is 3% and the investments have the potential within your risk profile to return 7% then it would be daft to pay off mortgage.

Also, you only get one bite of the cherry with the 25% on those funds. If you take 25% now and the remaining 75% in pension fund doubles in the next 10 years you are not able to take another 25% (apart from on new contributions). Also, you reduce the death benefits of the pension.

With mortgage rates typically very low and investment prices back at around 2005 levels, it wouldnt seem like a good idea unless you feel that the years until you retire are not going to be good for your investments.

acrickie, it can be a good idea to make extra pension contribitions instead of overpaying on, or using, a repayment mortgage. The tax gain from relief on contributions and no tax on the lump sum plus investment returns that are usually higher on average than mortgage interest rates are both advantageous. Then you can use a lump sum from the extra contributions against the mortgage.

However, if you were to make a lump sum payment now your timing is atrocious and would probably eliminate all of the potential gain and more.

We are currently near a low point in the stock market cycle. That gets you low values when selling the investments to take the lump sum. Now is the time to be increasing money going into investments, not taking money out of them. The next stock market boom is when you should be considering shifting money into fixed interest investments like government or corporate bonds or taking some of the capital as a lump sum to reduce the mortgage balance.

We are currently in a time of historic and near historic mortgage interest payment levels. This minimises the gain from paying off additional capital.

We are currently in a time when inflation is anticipated in a year or three and this will reduce the real (after inflation) value of the mortgage debt. This favours waiting until inflation has reduced the value before overpaying.

Your timing is horrible and you're picking close to the worst possible timing to be doing this.

What you should be looking to do, if you want to get the benefits, is commit any overpayment on the mortgage money to pension or stocks and shares ISA investing. Wait three plus years for the next market boom cycle and for inflation to do its work and then consider paying off a lump sum, selling some of the investments at a high value to do it. That way you'd gain on the tax breaks, gain on the stock market movements and gain from inflation.