Pension v. mortgage?

Desperate_Housewife_2-2

Hi,

I wonder if anyone can help with some advice please?

My OH and I currently pay £410 p.m. into our pensions and wondered if we would be better off using this money to pay off our mortgage? I reckon it would only be for 2-3 years and then we could carry on with pensions while motgage free, would it be worth it?

BTW we are both in our late 40s.

Thank you in anticipation...

Martinslovechild

This would be a personal decision, but I wouldn't risk being out of the stock market for the next 2-3 years as I truly believe that the stock market will continue to perform very well through to early 2010 (although I'm expecting a crash at some point in 2010, so you may want to change the funds that your pension is invested in at that time).

Desperate_Housewife_2-2

Thing is about the stock market...I remember the crash in the '80s and I feel more comfortable being debt free (that includes mortgage free).

Also remember the negative equity, 15% interest rates and reposessions ...

Martinslovechild

But your pension is invested in the stock market, and that's what I mean about not diverting funds away from it for the next 2-3 years.

jamesd

In general, no, you will be better off continuing with the pension payments and having the mortgage last as long as possible. In specific, nobody can say whether you will or will not be better off because the markets where the pension money is invested could fall now and recover in four years, making deferring payments most beneficial.

If you are both of the view that you would be more comfortable with the mortgage paid off you could simply take that view and do it anyway. This is one of the fundamental choices in investing: the risk level you are comfortable with. If yours truly is that you want to pay off the mortgage anyway, then so be it. It is a choice that will typically result in poor and, if continued in pension fund selections, very poor investment returns and a comparatively small pension compared to those who take more risk, but it is your risk level to choose, not mine or that of anyone else.

One thing that probably is worth doing is looking at how your pension money is invested and seeking some opinions on whether it is well invested, then possibly changing that if the answer is that it could be better. It's very common to find pension money invested inefficiently.

h4nym

Hiya Deshouse!

Is there any chance that your home will become any part of your pension planning? Are you expecting to downsize, for example?

In that event, it could easily be a tight decision to maintain the higher contributions or pay off your mortgage... sorry to merely add an element to your quandary, but it's a fascinating question and I'd love to see a discussion flower!

All the best

H

wannasavemoney

What if you pay off your mortgage in the 2/3 years youve estimated and then double the amount you pay into your pension if that is possible for the following 2/3 years to make up for it? Would that be an idea?

h4nym

Interesting article in Business Week - yes, ok, it's got a US slant, but the tax side is much the same, apart from them still getting tax relief on their mortgage interest.

Summary here: http://www.businessweek.com/playbook/07/0125_5.htm
Full article: http://www.businessweek.com/magazine/content/07_06/b4020112.htm

Desperate_Housewife_2-2

Thank you for all the input, I have decided to do both and ease up on the mortgage payments.

I suppose ita all a matter of balancing the budget without over emphasising one particular component of it.

dunstonh

Thing is about the stock market...I remember the crash in the '80s and I feel more comfortable being debt free (that includes mortgage free).

18 months after that crash it was higher again. If you look at the 2001/2 crash you would be higher again now (about 60% at just average returns).

In this life you have a number of responsibilities. Putting money aside for retirement is one thing. Paying the mortgage is another. Delaying your retirement provision by 5 years means that when you do (re)start it your contributions will have to be at least 50% higher to make up for missed time.

You dont ask if you should pay either the gas or the electric. You do both and the same applies here.

Investments generally outperform interest on mortgages anyway so there is little reason to repay the mortgage earlier.

IFA

Hmm... I bought some shares in a tech fund in 2001/2 and the value of them now is 23% of the original investment. I haven't sold them yet just forgotten about them, maybe in 15 yrs they will get back up to my original investment.... Not holding my breath I need a 428% increase lol