mortgage or pension??

craig_s_2

Should i use my accrued pension to pay off my mortgage??

illgetthere

hi what figures are you talking about please..

how much is your outstanding mortgage/how much pension is available?

originalmiscellany

How else will you pay your pension off? You don't give a lot of info Craig...
How old are you? What's the value of the house? How much mortgage is still left? Do you have any other debts?

originalmiscellany

You have to help us help you Craig!

craig_s_2

Im 48 yrs old...have a mortgage of £108,000 over 7 years to pay.
I have a current pension worth £109,000 and two very slow endowments of £28,000 posssibly to sell on.
I understand the concept of using savings against the mortgage but unsure whether the pension fund is a good idea to use ??

craig_s_2

sorry - house is worth £240,000

Annisele

If your entire pension fund is worth £108k, then you don't have enough to pay off your mortgage. When you reach 55 you can generally take 25% of your fund as tax free cash, but you can't access any of the pension fund until then.

craig_s_2

sorry - being thick this end.... pensions can not be cashed in ???

dunstonh

Pensions cannot be cashed in. They are pensions. Not savings accounts. You cannot commence a pension until age 55 (unless you have protected age).

jamesd

It can be a good idea to use savings that pay less than the mortgage interest rate to pay off part or all of a mortgage. For the main UK stock market the average return over all five year periods from 1977 through 2003 was 10.5% plus inflation. So if your pension money is invested in comparable investments it could be a good idea to consider selling those investments if your mortgage interest rate is 13.5% or so.

Unless you have been working in a career with an unusually early retirement age, like many professional sports, or have some preserved entitlement to take money at age 50, the earliest age at which you can take any money from a pension unless you have a fatal illness is 55. At that point you can take 25% of the pot as a lump sum and can take an income from the remaining 75%.

Clearing the mortgage then investing the money isn't sufficient because you'll have lost years of compound growth and will probably never be able to catch up.

If you want to know how to be better off, not just how to clear a mortgage, it is something like this:

1. Cease all mortgage overpayments and invest the money in a stocks and shares ISA or pension. On average you can expect to be considerably better off after seven years from doing this than if you'd put the money towards paying off a mortgage early, because you gain more from the compounding of the greater investment average return.

2. Decide whether you want to retire at your state pension age, 67 or 68 or whether you want to retire sooner. Then decide how you are going to be able to do it. That will involve things like pension and S&S ISA contributions.

There are people who are unwilling to take any investment risk. That means that they will need to use several times as much money for retirement as someone using pension and other investments because they won't get the investment growth levels. For such people overpaying on a mortgage can be a good idea.

Other people just want a mortgage gone as soon as possible and don't mind making themselves poorer to do it. Or maybe they see the nice interest saved numbers from mortgage overpaying and don't look for the investment gains lost numbers to see that overpaying makes them worse off.

I expect that most people will like the idea of retiring earlier or better off more than they like the idea of having their mortgage gone a few years earlier.

Or the short version: overpaying on your mortgage if you're willing to invest makes you poorer long term. Only do it if you want the mortgage gone more than you want to retire early or be better off.

craig_s_2

Thanks for this info... i never really understood the long term picture with all this. Some things the majority of people - me included - go into with your eyes wide shut! Thanks again