Using pension to pay off mortgage...or buy physical gold

jamesd

dont_use_vistaprint wrote: »

If you can draw at 55, and still working/earning, HR tax payer, with high mortgage, what would be the factors to decide if you should use pension to pay off some or all of a mortgage? and then put your mortgage payments into your pension.

Would it just be comparing the pension growth forecast and risk of losses against the interest rate on the mortgage.. anything else to consider ?

I could pay off my interest only mortgage with my pension but I'm not going to do so before the end date because I anticipate greater investment returns than the cost of the mortgage. At the end I'm likely to prefer remortgaging or equity release for the same reason.

If doing it you'd want to use only the tax free lump sum and maybe small pot rule to avoid triggering the money purchase annual allowance reduction in allowed pension contributions.

Some people just want the mortgage gone. While not likely to be the most beneficial choice it's a valid one.

You should consider the lifetime allowance. It might be beneficial to take the PCLS money gradually for ISA or VCT investing to reduce the chance of being affected. A suitable amount of VCT investing can be quite useful as a tool to reduce effective tax rate while getting investment performance.

PuzzledDave

dunstonh wrote: »

Crashes are always coming. Ups and downs are part of investing. Trying to time the ups and downs by putting it into non-earning assets is just daft.

Just as a point of interest, a fellow at the Mr Money Mustache tried market timing recently. In early Feb he said: "I remain long-term optimistic on the US stock market but I'm short-term pessimistic. I think the sitting president is going to be impeached and there's going to be a knock-down, drag-out fight in which the markets temporarily plummet as all this Russia stuff comes to light.

Current VSTAX price: $68.18"

so he sold $60k of his investments and planned to get back after the drop. Here are his results since then:

On Feb 14 the closing price was $68.85, meaning that he had cost himself $1,125.11 after one week of trying to time the market.
On Feb 22 the closing price was $69.98, meaning that he had cost himself $1,866.26 after two weeks of trying to time the market.
On Mar 01 the closing price was $70.28, meaning that he had cost himself $2,402.03 after three weeks of trying to time the market.
On Mar 08 the closing price was $68.62, meaning that he had cost himself $919.73 after four weeks of trying to time the market.
On Mar 15 the closing price was $70.56, meaning that he had cost himself $2,652.05 after five weeks of trying to time the market.
On Mar 22 the closing price was $69.49, meaning that he had cost himself $1,696.60 after six weeks, plus $333.61 in dividends not paid is $2,030.21.

Market Timing attempt

k6chris

dont_use_vistaprint wrote: »

I fully understand that, but this is different.

If it's different this time, what makes you think physical gold will be the best store of wealth? Gold is currently at the same price (vs USD) as it was in 2010, which given inflation over that time, is not a good store of wealth. It may be that things do get so bad that physical gold becomes a 'good thing' but if so I think there will be bigger issues than the value of your pension portfolio. If you want 5% of your portfolio in physical gold, as part of a diversified portfolio, excellent....more than than I'm not sure is wise? Just my personal £0.02

pensionpawn

jamesd wrote: »

I could pay off my interest only mortgage with my pension but I'm not going to do so before the end date because I anticipate greater investment returns than the cost of the mortgage. At the end I'm likely to prefer remortgaging or equity release for the same reason.

If doing it you'd want to use only the tax free lump sum and maybe small pot rule to avoid triggering the money purchase annual allowance reduction in allowed pension contributions.

Some people just want the mortgage gone. While not likely to be the most beneficial choice it's a valid one.

You should consider the lifetime allowance. It might be beneficial to take the PCLS money gradually for ISA or VCT investing to reduce the chance of being affected. A suitable amount of VCT investing can be quite useful as a tool to reduce effective tax rate while getting investment performance.

I believe that the days of paying off your mortgage in 25 years went some time ago and we have entered an era where there is an argument for never paying your mortgage off (until discharged via your estate). Why? Well, helping your kids onto the housing ladder / through higher education is becoming close to essential in recent times. If you can fix the mortgage from late 50's / early 60's at a manageable rate compared with salary / pension then as the actual payment falls in real terms (due to inflation) there is an argument to be made compared to your kids having to wait (hopefully) a very long time for a helpful inheritance.

The maths is compelling. You could repay your £200k mortgage on your £400k property in two years time at age 55. Alternatively you could use £100k to get the kids on the property market / through university, keep £100k for emergencies and keep the mortgage going for another 22 years. My current house is estimated to have quadrupled in value over 22 years and if this is replicated £400k turns into £1.6M. On winding up the estate the £200k mortgage isn't going to spoil the £1.6M party too much, especially compared to how useful the £100k was in the present. It's certainly worth thinking about....

[Deleted User]

pensionpawn wrote: »

The maths is compelling. You could repay your £200k mortgage on your £400k property in two years time at age 55. Alternatively you could use £100k to get the kids on the property market / through university, keep £100k for emergencies and keep the mortgage going for another 22 years. My current house is estimated to have quadrupled in value over 22 years and if this is replicated £400k turns into £1.6M. On winding up the estate the £200k mortgage isn't going to spoil the £1.6M party too much, especially compared to how useful the £100k was in the present. It's certainly worth thinking about....

By this logic you should borrow as much as the bank would lend and put it all into Apple stock. £400k invested in 2002 would have turned into £40M today. The maths is compelling.

pensionpawn

Deleted_User wrote: »

By this logic you should borrow as much as the bank would lend and put it all into Apple stock. £400k invested in 2002 would have turned into £40M today. The maths is compelling.

I would suggest that housing is a substantially safer investment that one single stock over the long term. The same style of house as my own is presently selling for approximately four times what I bought mine for 22 years ago. Now past performance doesn't guarantee the precise future value of my house however I believe that there is common agreement that in the longer term house prices rise and the value of fixed payments will be eroded by the difference in investment growth over the RPI. Ask around people who have had a mortgage for around 20 years regarding how their repayments compare now to 20 years ago and how the value of the mortgage loan compares to their current house valuation.

Linton

pensionpawn wrote: »

I would suggest that housing is a substantially safer investment that one single stock over the long term. The same style of house as my own is presently selling for approximately four times what I bought mine for 22 years ago. Now past performance doesn't guarantee the precise future value of my house however I believe that there is common agreement that in the longer term house prices rise and the value of fixed payments will be eroded by the difference in investment growth over the RPI. Ask around people who have had a mortgage for around 20 years regarding how their repayments compare now to 20 years ago and how the value of the mortgage loan compares to their current house valuation.

On the other hand from the NI House Price Index house prices in Northern Ireland are about 1/3 down over the bast 12 years. Who's to say the same thing cannot happen in GB.

pensionpawn

Linton wrote: »

On the other hand from the NI House Price Index house prices in Northern Ireland are about 1/3 down over the bast 12 years. Who's to say the same thing cannot happen in GB.

Nothing is impossible. I was myself caught in negative equity buying a house in 1989 and selling it for less than the mortgage 7 years later. However in order to keep the mortgage going in to your old age lenders would insist on affordability tests such as evidence that repayments and other bills can be met with pension / salary income etc. Also, that there is at least 50% equity in the property, offsetting what would be an unprecedented 50% fall in market value over the term. The mortgage market is evolving for an older customer with a good steady income (e.g. RIO mortgages) and for those trapped with their present mortgage provider..

westv

pensionpawn wrote: »

Nothing is impossible. I was myself caught in negative equity buying a house in 1989 and selling it for less than the mortgage 7 years later. However in order to keep the mortgage going in to your old age lenders would insist on affordability tests such as evidence that repayments and other bills can be met with pension / salary income etc. Also, that there is at least 50% equity in the property, offsetting what would be an unprecedented 50% fall in market value over the term. The mortgage market is evolving for an older customer with a good steady income (e.g. RIO mortgages) and for those trapped with their present mortgage provider..

Don't a lot of lenders exclude drawdown income when calcuĺating affordability?

Thrugelmir

dont_use_vistaprint wrote: »

Looks like in general the pension is far better apart from this last year, but I guess a crash between 55 & 65 could change all that?

Markets don't just crash they underperform for extended periods.