# Key Post: start pension or contribute more to mortgage?



## fobs (23 Oct 2003)

I have a pension from work which both I and my employer contribute to but my husband aged 30 does not have any pension. We have just bought a house worth 275,000 and have a mortgage of 180,000 on it. My question is what would be the best course of action for us to take. Our mortgage is over 25 years and we pay 865 approx each month. We are contributing the max to an SSIA and have some cash at the end of each month that we could do something with. Should we: 
A. Start a pension fund for my husband now.
b.  Pay more into the mortgage or reduce the term to over 20 years.
any advice appreciated....


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## rainyday (23 Oct 2003)

*Re: start pension or contribute more to mortgage*

Will your husbands employer make a matching contribution to his pension?


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## fobs (23 Oct 2003)

*re:will employer contribute*

No!


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## daltonr (23 Oct 2003)

*Re: re:will employer contribute*

I'd imagine a pension would be better.  UNLESS you think you might want to use the equity in your hosue in the future, perhaps to trade up, or buy a second house.  increasing repayments would give you more to play around with in a few years.

Money in the pension will get a better return (with tax relief taked into account etc.) but you can't get at it until retirement.  If the employer was contributing there'd be almost no debate.  That would be very tempting.
Having so much locked away might be an issue of circumstances change.

You should probably throw a bit of the spare cash at an Independant Financial Adviser.  There are other options besides a pension or your mortgage.  (Don't go to your bank for advice).

-Rd


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## rainyday (23 Oct 2003)

*Re: re:will employer contribute*

I'd be inclined to throw my extra cash into the mortgage to reduce the outstanding balance and/or duration. In these difficult economic times, you never know when you'll be faced with a sudden drop in income. You will be better able to cope with such a drop if your mortgage is down to a more manageable level. A good rule of thumb is to get your mortgage down to no more than one years gross salary.

If you really really the money in the future, you could always do an equity release to get it back out of the mortgage.


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## Brendan Burgess (25 Oct 2003)

*Re: re:will employer contribute*

I would agree with Rainyday.

How comfortable is your mortgage?

How comfortable will it be if interest rates by 3%?
How comfortable will it be if one of you gives up work or loses your job?

At 65% loan to value, it's quite comfortable, but if you get it down to 60%, you might be able to get a cheaper mortgage. I think some cheaper rates kick in at 60%. 

Is your home your final home or might you want to trade up in a few years' time?

At 30, you have plenty of time left to increase your contributions.

Brendan


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## fobs (29 Oct 2003)

*re: Pension*

This will be our final home hopefully as we have bought it recently and have moved to a nice location which is still convenient to travel further afield to work if it becomes necessaey in the future.
I do feel we could still manage if interest rates rose by 3% but that would very much depend on us both remaining with current salaries. We could not do without one salary with our current lifestyle and commitments.
Would we be better off saving and paying lump sums off the mortgage or paying a little extra each month? Our mortgage is with first active but is not the current a/c mortgage. THanks for the advice...


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## rainyday (29 Oct 2003)

*Re: re: Pension*



> Would we be better off saving and paying lump sums off the mortgage or paying a little extra each month?


If you have made the decision to pay it off your mortgage, you should get it in there asap, so pay a little extra each month. You should probably advise your lender of the overpayment, just to mae sure they manage thinks properly.


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## rainyday (29 Oct 2003)

*Re: re: Pension*



> Would we be better off saving and paying lump sums off the mortgage or paying a little extra each month?


If you have made the decision to pay it off your mortgage, you should get it in there asap, so pay a little extra each month. You should probably advise your lender of the overpayment, just to make sure they recalculate the interest properly.


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## Alan Moore (30 Oct 2003)

*Thoughts?*

"Would we be better off saving and paying lump sums off the mortgage or paying a little extra each month?"

If you go down this road you may be better off to do both lump sums and a little extra this month. The earlier the lender has the money the less interest you'll have to pay. So if you find you get bonuses etc then put the money away asap.

Now the question of whether to pay off the mortgage or pay into a pension.

The road suggested by Brendan & Rainyday is certainly the safer road to go down, however the pension route is potentially more rewarding however riskier. There are those that point out what happens if interest rates go up. Indeed that is a risk. However most pundits suggest that interest rates will rise when the economies of the world recovers and therefore it follows that investments should recover also. For me pension outweighs mortgage (principally for tax reasons) but I would classify myself as a medium to high risk investor. Might not be for everyone.


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## L&A (11 Feb 2009)

Just wondering for my own situation- I am considering a pension at the moment too but I have a larger mortgage.  If the returns are based on a % then if the amt of mortgage is greater would that mean better savings ie the way to invest (pension vs over pay mortgage) is based on the outstanding amt on mortgage and your age?
I'm 33 with a mortgage outstanding of €266K (jointly with hubbie who has his own pension) and I only pay tax at the lower end of the tax band.
Any comments appreciated!


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## thlint (15 Nov 2010)

Anybody under 45 should only consider a pension under very exceptional circumstances. *Pay off your mortgage *-- absolutely certain that you will get a rate of return of at least your interest -- every other investment almost certainly will go down and unlikely to go up!
When young -- you need money for schools, 1st car , and for everything that you will ever need as well as some money for a rainy day. Plus your income is usually lower When you are older (50+) mortgage is paid, kids are reared, you have all the rubbish you will ever need -- Your income should be higher -- now is the time to think about your pension and spend your rainy day money.


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