Using Pension Pot to pay off mortgage?

bostonerimus

...yes you can have a stocks and shares ISA that might return 10% or 20% a year...of course you could lose money too. At 3.59% mortgage interest you might think about using some ISA money to pay down the mortgage faster or look to refinance if that's possible under the terms of your mortgage

If paying off the mortgage is really important you might think about economizing in other areas to make even more extra payments. First on the list for me would be TV subscriptions, then take out meals and turning down the thermostat a few degrees.

Anonymous101

Easysilence wrote: »

Thanks guys for all your replies. You convinced me, I'll leave my pension pot alone.

Being in my early fifties now I'm at the point where I shoud be at the point where I've either paid off or am close to paying off with next to nothing monthly payments a mortgage taken out in my twenties. At this point in my life I would have hoped to have some spare cash to pay for nice holidays and the like but with my whopping mortgage payments set to go on for another 14 years sadly no such luck for me.

. The overpayments I've been making are minimal, but the way I see it every chunk I pay off is a tiny bit less interest I pay.

Someone suggested putting money in an ISA rather than paying off my mortgage but I'm not getting this ... the most I can earn on an ISA is 0.75% and I'm paying 3.59% on the mortgage .. is this something else I'm not understanding?

I suggested that as after doing a lot of reading its what we decided to do. I was particularly referring to investing in a Stocks and Shares ISA. Which I know can sound daunting for some people.
If you're one of those read this recent thread from the investing section as to why people don't invest when they should: https://forums.moneysavingexpert.com/discussion/5743972

Using a S&S ISA you can expect a normalized return of around 8% a year after inflation. However returns do fluctuate year on year so investing in this way should be done for longer time frames such as your 10-14 year horizon for your mortgage. Much better than cash ISA's which most people think about and significantly better than the saving you would achieve from overpaying on your mortgage.

Rikaroo

Sorry to jump on an old thread but this seems like the best place for my question...
We have £59 lump sum but not sure what to do with it.

Mortgage also happens to be £59k with 15 years to run.

Assuming an average rough mortgae rate of 5% means we'll pay around £84k in total. Boo hiss.

Option 1 - Use the lump sum to invest in SIPPS (we're 46years old) and gradually pay off the mortgage over 15 yrs

Option 2 - Use the lump sum to pay off the mortgage. Then for the next 15 yrs pay what we would have spent monthly on the mortgage into a SIPP.

My thoughts were Option 2 would be better as we'd save around £25k on the mortgage interest whilst still getting the benefit of 20%tax rebate in the SIPP plus any interest earnt from the investments in the SIPP.
Also, when we retire we wouldn't need as much drawdown pension loot as we'd have no mortgage going out, thus saving on PAYE.

Any of this make sense or am I missing something major?

crv1963

Hi Rikaroo

Personalty I'd do option 1, but Mrs CRV would want option 2 so we'd end up with a compromise of half off the mortgage and half into SIPP (in her name for tax reasons when drawing pension income- I'll be a BR payer she will not), then we'd put any reduced mortgage payment savings into a SIPP.

Bear in mind having a mortgage helps your credit rating- should you need to raise any credit between now and retiring.

Rikaroo

Thanks Mr CRV. So a bit of both?
Thought this would be a straightforward sum but I'm sure I'm missing something.
Good tip on the credit rating, hadn't realised that.

I'm kind of erring towards paying off almost all of the mortgage and drip feeding the savings into the SIPPS over 15 years.
Honestly don't know if this is the best thing to do financially but...

1 - Concerned about the large amount of folk (interweb pundits and friends) who seem to think funds and stocks are overvalued and that there will be a big stock market correction in the next year or 2. Don't want to chuck our nest egg into a pot just to lose 25% to a correction 6 months in.

2 - Would be ace to save £25k in interest payments. I realise I could maybe get more from investments but they aren't guaranteed. Plus, plan is to keep paying the "mortgage" but invest it gradually.

3 - We'd still gain the 20% rebate by drip feeding into the SIPP (hopefully 40% if Mrs Rikaroo get a pay rise soon) Plus, if times get hard, we can pause the payments without having to beg the bank as we would with the mortgage.

Still got this nagging feeling that I'm missing something though...

IanSt

It's not what I would do, but then my set of circumstances are different to yours and paying off the mortgage may well be the best and right thing for you.

However if you do pay off the mortgage then make sure that the savings do go into your pensions, it's very easy to get sucked into using the money for one off "nice to haves" that suddenly become "must haves" that you can't live without.

AlanP_2

What about your current, overall situation?

Do you have an Emergency Fund? Need cash at some stage for School / Uni fees if you have kids (and if you don't are you planning to)? Buy a bigger house / more expensive area at some stage?

Paying off the mortgage is a nice "feeling" but consider the overall situation, plan, life goals not just one the mortgage/pension aspects.

kidmugsy

If Mrs is soon going to pay 40% tax it's a sure thing that she should contribute more to a pension to avoid that.

Presumably you're not in the position that reducing the mortgage a bit would reduce the interest rate you pay.

My instinct would be to aim to avoid 40% tax, to overpay the mortgage a bit, to top up emergency cash if needs be, maximising my use of 5% regular savers and current accounts. In other words I'd diversify.

That's a plan that gives you a fair bit of flexibility as circumstances change.

Rikaroo

Good ideas all, thanks.
Think I'll avoid putting all the eggs in 1 basket and spread it about a bit. Would be good to have the emergency fund to draw on if need be. Or to help fund the kids should they make it to Uni. Sounds like the safest option. Especially if the markets do have a correction in the next couple of years.

atush

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

Paying 40% (or more) in tax on 75% of your pension amount.

Not being able to pay more than 4K per year into pensions going forward.

Being poor in retirement or having to keep working beyond pension age.