Using Pension Pot to pay off mortgage?
Easysilence
Posts: 11 Forumite
Hi,
I have a fairly hefty mortgage which runs for another 14 years. I have a pension pot from my last employment which is about £10k short of what I owe. I'm increasingly not liking the amount of interest I'm paying on my mortgage so am thinking, use the pension pot to pay it off then put the money which would have been the mortgage payments to go into my current pension pot. Can anyone advise what the pitfalls would be?
Many thanks for your help
I have a fairly hefty mortgage which runs for another 14 years. I have a pension pot from my last employment which is about £10k short of what I owe. I'm increasingly not liking the amount of interest I'm paying on my mortgage so am thinking, use the pension pot to pay it off then put the money which would have been the mortgage payments to go into my current pension pot. Can anyone advise what the pitfalls would be?
Many thanks for your help
0
Comments
-
Easysilence wrote: »Can anyone advise what the pitfalls would be?
Many thanks for your help
Being skint in retirement?
Seriously, though, interest rates are at all-time lows. The long-term (integrated over periods of >10 years) return on investment on equities is ~4% real. How come you're paying more on your mortgage than your pension would be gaining?
For a more accurate impression you need to say roughly how old you are to see how far away from retirement you'd be, and what other retirement savings you have. If you have enough for your retirement in other savings, perhaps paying it off is OK, though it's hard to see why you should be in too much of a hurry to pay off a mortgage rather than investing the money.0 -
What is the interest rate on your mortgage? It would have to be really high for your suggestion to make any sense.“So we beat on, boats against the current, borne back ceaselessly into the past.”0
-
Easysilence wrote: »Hi,
I have a fairly hefty mortgage which runs for another 14 years. I have a pension pot from my last employment which is about £10k short of what I owe. I'm increasingly not liking the amount of interest I'm paying on my mortgage so am thinking, use the pension pot to pay it off then put the money which would have been the mortgage payments to go into my current pension pot. Can anyone advise what the pitfalls would be?
Many thanks for your help
Pitfall 1 - if you are under 55 you can't touch it.
Pitfall 2 - if you are over 55 prepaired to pay a large portion in tax, so you will be way off only owing another £10k0 -
Duh ... didn't think about the pot growing, I've been burying my head in the sand about the whole getting old thing and know so little about pensions ...
I want to pay off my mortgage. £300 a month of it is interest - I am making overpayments on it because I hate the idea that I'll still be paying a mortgage when I'm 65 and a half. Instead of doing this would I be better to bump up the pension pot .... ?0 -
Is this a company pension? If so, will the company pay in any extra if you increase your payments?
Even if a private scheme, payments up to the level of your earned after tax income get tax relief paid in from the government.
Both "free" money0 -
It is a company scheme, but my present employer will only match my contributions up to 3% and I am already contributing more than that.0
-
Have you looked at switching your mortgage recently? If you've now paid enough to put in you in a higher equity band you may find cheaper deals are available. It makes far more sense to pay any extra money you have into your pension rather than overpaying the mortgage.1
-
Yeah that does make sense, I suppose it's me not wanting to look ahead that far but liking the idea of having a few mortgage free years before I retire. It's a fixed rate mortgage which I'm stuck in for nearly 2 more years, I will shop around when it's finished though.0
-
Easysilence wrote: »liking the idea of having a few mortgage free years before I retire.
That's a really bad idea. BTDT - I was daft enough to pay off my mortgage before I retired. Then work turned crappy and I wanted to retire early, at 52. Having paid off that mortgage very seriously constrained my disposable income for 5 years of early retirement. Retiring early was still a great move and I don't regret it in the slightest, but were I still carrying that mortgage I could use the pension commencement lump sum to discharge the rest of it in a few years time. Or just carry it till fruition if interest rates remain at rock bottom, take the PCLS and put it to work in an ISA until about 5 years from mortgage redemption, when you need to derisk market exposure.
Seriously, just don't get hung up on having a mortgage when interest rates are this low. What you need is a sensible plan to discharge the capital once you have retired. That's what your 25% tax-free pension commencement lump sum is for
1 -
What you need is a sensible plan to discharge the capital once you have retired. That's what your 25% tax-free pension commencement lump sum is for
I'm* planning on spending my 25% on wine, women and song - the remaining 75% I'm just going to waste.
* My wife may have other ideas ;-)0
Categories
- All Categories
- 343.1K Banking & Borrowing
- 250.1K Reduce Debt & Boost Income
- 449.7K Spending & Discounts
- 235.2K Work, Benefits & Business
- 607.8K Mortgages, Homes & Bills
- 173K Life & Family
- 247.8K Travel & Transport
- 1.5M Hobbies & Leisure
- 15.9K Discuss & Feedback
- 15.1K Coronavirus Support Boards