Reply to: Pay off mortgage early or Pension?

[Fred Bloggs]

Try and do all 3 if possible, personal circumstances and the uncertain future of the housing and stock markets mean there is no right or wrong, so best not to put all your eggs in one basket.

The ratio of mortgage overpayments to pension payments can be tricky to decide, someone who has been burned in the stockmarket may say screw pensions and pile everything into paying off the house first.
But another way to look is that this year and the next few years could be the best time to invest in the stockmarket for the long term, and Milan makes a point on inflation lessening mortgage burden over time. Then there is the considerable tax saving and IR35-busting aspect of paying company contributions into a SIPP. This may not last forever.
The danger of just paying the house off and putting nothing into a SIPP/ISAs until mortgage-free is that by the time you start the stockmarket may be toppy and poor value. Better to take advantage of pound cost averaging over time.
However if you bought a house with a mortgage based on contractor income the priority should be to get the mortgage down to a level that an impoverished permie could still afford.

IMO, that is all very sensible advice.

[Shimano105]

Milan recomends getting a mortgage

Honestly, I luv im to bits but he is such a tool!

[singhr]

Pay off mortgage first, in all probability you won't get your pension anyway - it's much easier to raid pension funds than homes with extra tax.

WHS

[GreenerGrass]

mortgage.....then ISA....pensions are way after that...any IFA's who tell you otherwise are after commission

Try and do all 3 if possible, personal circumstances and the uncertain future of the housing and stock markets mean there is no right or wrong, so best not to put all your eggs in one basket.

The ratio of mortgage overpayments to pension payments can be tricky to decide, someone who has been burned in the stockmarket may say screw pensions and pile everything into paying off the house first.
But another way to look is that this year and the next few years could be the best time to invest in the stockmarket for the long term, and Milan makes a point on inflation lessening mortgage burden over time. Then there is the considerable tax saving and IR35-busting aspect of paying company contributions into a SIPP. This may not last forever.
The danger of just paying the house off and putting nothing into a SIPP/ISAs until mortgage-free is that by the time you start the stockmarket may be toppy and poor value. Better to take advantage of pound cost averaging over time.
However if you bought a house with a mortgage based on contractor income the priority should be to get the mortgage down to a level that an impoverished permie could still afford.

[Muttley08]

mortgage.....then ISA....pensions are way after that...any IFA's who tell you otherwise are after commission

[AtW]

Pay off mortgage first, in all probability you won't get your pension anyway - it's much easier to raid pension funds than homes with extra tax.

[shaunbhoy]

eh Shaun,

happy new year

Milan.

You too benesy!

[milanbenes]

eh Shaun,

happy new year

Milan.

[shaunbhoy]

let's us know if you need any tips on the mating game

Milan.

That would be like asking for advice on rewiring your house from Edward Scissorhands!!!

[minestrone]

To have your house paid off is total security.

My plan is to have the house paid off in the next few years but I am always paying into a pension.

It's a mix really. Get the house you want paid off and enough in your pension to keep you in incontinence pants when you do want to retire. The state pension is not going to keep you warm when the gas runs out in 30 years.

I'm off to Vietnam to live at the age of 60.

[Fred Bloggs]

We are very debt averse so we did pay off the mortgage first and have no other debts. Whether it was a good thing or not I don't know. We sold our 2nd house a long while ago for what we paid for it, that WAS a bad move.

[milanbenes]

Mate,

Wilmslooooooooooooooooooooooooow is a permy.

Do try to keep up at the back.

Milan.

[IR35 Avoider]

I would put company money into pension if it was otherwise going to be taxed as salary, as a consequence of IR35. This is regardless of whether the salary was going to be taxed at higher or basic rate, since even at basic rate there's in the region of 40% tax relief once you take the NI savings into account. (I assume that salary will always be paid in preference to pension up to the level of the personal allowance, and any trade-offs occur above that level.)

If you believe you are definitely not IR35-caught (though I don't think I would ever be completely sure) so the trade off is between company pension contributions and mortgage paid off from money passed as dividends, then I'd take dividends up to the higher-rate threshold and pay off the mortgage. Profits above that threshold I'd either leave in the company (for a rainy day) or pay into pension if I wanted to keep company accounts empty.

Any savings and investments already held and not in an ISA I would use to reduce mortgage, as long as I was sure I would not need access to the money in the foreseeable future.

[milanbenes]

my two pence,

i am leaning towards the concensus that inflation is coming

in which case, if ever there was a time to get a mortgage and if you
believe inflation is coming then now is the time to get a mortgage


Wilmsloooooooooooooooooooooooooooow happy new year, and remember, goal for 2010 - a woman

let's us know if you need any tips on the mating game

Milan.

[lje]

I put a lot of effort into paying off my mortgage early. That paid huge dividends earlier this ear when (for around 6 weeks) neither Mr LJE or I had any income - we were able to work out how long we could afford to live if we didn't get any more money in and it was quite a comfort.

Having said that, when we paid the mortgage off the interest rates were still reasonably high and so it made more sense. Now-a-days with interest rates so low I'm not sure I would be as keen. However, we now have a lot more free income (because we have no mortgage to pay) which we can save or invest as we choose - further increasing our ability to face up to any future financial problems.

Also, even when paying the mortgage off at a higher rate we both still put a good chunk of our money into pensions. I think it's a case of doing multiple things. I don't know if pension investments or houses are going to go up or down before I retire - but I've invested in both and so should get the good with the bad. Overall hopefully it'll be OK.