# Paying off mortgage vs. pension investment



## shug02 (12 May 2004)

Probably answered this somewhere else already but I am struggling (due to media propoganda perhaps!) to convince myself why I should take my spare cash at month end and invest in paying off my mortgage (19 years left on a 20 year variable) rather than invest it in my defined contribution company pension (30 years work left at least!).
According to the AAM Guide to Savings and Investments I should forget the pension and pay off the mortgage ASAP.  

Is this really a no brainer? Is it really better to pay off the mortgage faster and lose out on "compounding interest effect", 5% company pension bonus and tax relief of the long term pension fund ?

If so why do we not hear this ANYWHERE in the media?  Is it simply because banks make all the money off mortgage interest and pension fees?


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## Guest (12 May 2004)

Is this topic of any use?



Or this?

www.askaboutmoney.com/guide/ch02.htm


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## rainyday (12 May 2004)

Is the '5% company bonus' dependant on you contributing a similar amount?


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## shug02 (12 May 2004)

Some more info folks.

5% company bonus requires I contribute matching amount, which I currently do.

I am already maxed up on SSIA also - thanks to AAM!!!

Shug02


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## Guest (12 May 2004)

Availing of employer pension contributions would generally make sense all other things being equal (e.g. the charges being reasonable on the employer's pension scheme, the scheme offering funds suitable to your needs etc.) even if you don't already own your own house. In my view anyway...


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## shug02 (12 May 2004)

Am already availing of maximumamount of employer contributions - employer bonus capped at 5% regardless of me paying more.


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## Jonty (20 May 2004)

*Invest or Clear debt?*

Over the last 18 months I took the advice on this website and cleared my mortgage as fast as I could with my excess income.
Now that the mortgage is almost gone and I want to rent it out and release the equity to trade up, I discover that the interest on my mortgage top up will not be allowed against rental income. Now I'm faced with selling the property to trade up, or else paying massive tax on the rental income.

The right move would have been to use the excess income to invest in more property...which my mates did and made a killing.

Does that answer your question?


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## rainyday (20 May 2004)

*Re: Invest or Clear debt?*



> The right move would have been to use the excess income to invest in more property...which my mates did and made a killing.


It's easy to know how to make a killing with hindsight.


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## Brendan Burgess (20 May 2004)

*Re: Invest or Clear debt?*

Hi Jonty

That's a very good point you make. When advising people to pay off their mortgage, we should point out that they should not do this if they are planning to rent out the house.

Brendan


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## Guest (20 May 2004)

*Re: Invest or Clear debt?*

> When advising people to pay off their mortgage, we should point out that they should not do this if they are planning to rent out the house.

Surely this advice should be qualified in some way? After all, it is not OF NECESSITY a good idea to maintain borrowings just because the interest can be written off against rental income. While you can recoup some money this way the interest is still a net cost to the investor. Too many people seem to think that they are SAVING money by maintaining or even maximising their investment property mortgage borrowings just because they can offset the interest against rental income when they are NOT! Of course, if it's a trade off between redeeming the PPR mortgage early and then renting the old PPR or having that money available for a move to a new PPR while renting out the old one then that obviously brings other considerations into the picture. I would just be nervous of giving any absolutist advice on such matters since a lot depends on each individual's specifica circumstances...


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## JohnDung (21 May 2004)

*Re: Invest or Clear debt?*

I was advised by an independant account (at a seminar) that there is some merit in leaving a small percentage of the morgage in place. This is because morgage interest rates are a lot lower to say personal loans &  also it may save on the cost of drawing up a new morgage if one wanted to raise money some time in the future.


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## Guest (21 May 2004)

Yeah - this is mentioned here too:



But don't forget that as long as the mortgage is outstanding then you will also have to pay the cost of mortgage protection life assurance which may wipe out any benefit of keeping the mortgage unpaid just to potentially avail of a mortgage top up. Might just be better to pay off the mortgage and eventually use an equity release (at normal mortgage rates) if/when you need the cash. Of course there could be something specific about your personal circumstances that led the advisor to recommend the other course of action to you but I don't think that that is necessarily good advice for ALL people.


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