Pension versus Mortgage Capital Repayments

[YoungCUB]

If instead of paying off the capital due on my mortgage, I put that money into a pension fund and pay my mortgage as interest only, is this a good idea ?

i.e. to pay the Capital per month of € 1,138 off the mortgage, i have to earn € 2,000 before tax. So I put € 2,000 gross into a pension, as its tax free to do so.

I presume I am only deferring the tax, as will have to pay tax on my pension income except for a 20% lump sum, on retirement.

So is this a good idea and what are risks associated ?

 

[cancan]

It shouldn't be seen as a choice.
Both a pension and a house are necessary in the modern world.
But house won't feed you when you are 65.

Start a pension, and make capital payments on the home also if your finances permit.

Average market returns are much higher that pervailing interest rates for mortgages in the past, and more than likley into the future also.
People maybe gun shy after the past year, but events like last year are rare.

A home is not a pension.

 

[anotherdub]

I think that's way general a question to give any recommendations. I think you need to put some work into doing a few sums.

All sorts of factors to consider - your age, the value of your current pension fund or contributions to date, your desired income at retirement, how much you can afford to put away each month, etc.

Deferring mortgage payments when the interest rate is low is better than when its high, but you still end up paying more to the bank in the long run. Try a few what-ifs with Karl's calculator.

I presume I am only deferring the tax, as will have to pay tax on my pension income except for a 20% lump sum, on retirement.

Your pension fund may yield an income after retirement that means you never pay any tax on it. Even if you do, most of it will be untaxed.