Should I pay off my mortgage discussion

craig_s_2

i have funds in a pension that would clear 95% of my mortgage....should i cash in the pension and clear most of my mortgage???

i know there are penalties, but the pension route seems really dodgy lately.

And this would leave me with a reasonable amount to look for investments etc for my retirement in twelve years.

Has any one got any sound and understandable advice please ??????

seven-day-weekend

If by 'cashing' in your Pension you mean drawing all the money out, you can't.

You can have 25% as a lump sum when you are 55, but otherwise it stays within a Pension.

jamesd

craig s, why does the pension route seem really dodgy, particularly lately after one of the best years most world stock markets have seen? It's been a wonderful year for those who exploited it and didn't get too badly caught out in the drop that preceded it. Many markets, except perhaps emerging, gilt and high quality corporate bonds, are still at nice prices for buying.

Selling investments at what looks like the early stage of a multi-year global stock market growth cycle and using the money to pay off low interest rate borrowing looks like a poor investment decision. It's more a time to be regularly putting lots of money into investments to try to ride the cycle to being able to retire early.

If you're investing it's unlikely that you will be better off doing it outside a pension than inside unless your objective is increased capital access rather than increased income. If so, using your S&S ISA allowance, making pension contributions and perhaps putting a bit into VCTs to get their relatively high risk 30% tax rebate are interesting options.

If you're concerned about reports of final salary pension deficits increasing there's little need to be. About 75% of the increase over the last year or two has been due to the effect of quantitative easing on gilt and high quality corporate bond prices. That effect will unwind when the effects of the ending of QE work themselves through the market. The QE effect happens because it decreases expected long term income from the bonds even though it's only a short term effect.

tomloaf

I am going to come into a bit of money and want to use the majority of it to pay off my morgage. I cna pay off £8755 with no charge but then incure a 4% charge for any further amount each year
assumign i get 15k as a lump sum should i pay all of it off and take the hit of the 4% or pay off the £8755 and put the rest into savings until jan 1st 2011?
Thanks
Tom

getmore4less

tomloaf wrote: »

I am going to come into a bit of money and want to use the majority of it to pay off my morgage. I cna pay off £8755 with no charge but then incure a 4% charge for any further amount each year
assumign i get 15k as a lump sum should i pay all of it off and take the hit of the 4% or pay off the £8755 and put the rest into savings until jan 1st 2011?
Thanks
Tom

You need to give more info

Mortgage size
Mothly payment
Mortage rate
penalty period
Max overpayments and max monthly overpayments allowed
full term
follow on rate after penalty
tax rate
ISA used or not.

jamesd

tomloaf, if your mortgage rate is 4% or lower it's easy, the savings account wins. If the mortgage rate is less than 4% plus the after tax savings rate the savings account also wins.

You might be able to make regular overpayments each month as well as a capital repayment.

With some mortgages you can change the mortgage term and that might be another way to make higher payments. The trouble is that the administration charge for doing this is likely to make using the savings account the better option anyway when there's so little left to pay off.

tomloaf

My morage interest rate is 5% and fixed for the next 4 years.
i dont have any ISA's so can use this as the savings.
i can over pay by 8755 per calander year so just want to know if i should put the remaining £6245 in a savings account and pay it of on 1st jan 2011 or pay it all off now and incure a charge of £249.80.

Will i loose out more on my morage

i only got the house last year and am a first time buyer
tom

tomloaf

getmore4less wrote: »

You need to give more info

Mortgage size
Mothly payment
Mortage rate
penalty period
Max overpayments and max monthly overpayments allowed
full term
follow on rate after penalty
tax rate
ISA used or not.

Please see the below details any help woudl be greatfuly received
tom

My morage interest rate is 5% and fixed for the next 4 years.
i dont have any ISA's so can use this as the savings.
i can over pay by 8755 per calander year so just want to know if i should put the remaining £6245 in a savings account and pay it of on 1st jan 2011 or pay it all off now and incure a charge of £249.80.

Will i loose out more on my morage

i only got the house last year and am a first time buyer
tom

getmore4less

OK you can pay the money on 1/1/2011.

£6245 4% penalty so £249.80

Actualy you pay the fee out of ths money so it works out less.

£6004.81 off the mortgage £240.19 fee.

£6004.81 5% 9months is £225.18 (assume it comes 1st april).

Costs more to pay off the mortgage anyway so a no brainer stick in the best savings account you can find.

jamesd

You'd save 3.72% on the money by paying it off the mortgage 9 months earlier. That saving is less than the 4% cost of doing it so you should save instead.