Paying off mortgage to increase pension contrib

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billy-bob

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For years, my plan has been to pay off my tracker mortgage in the next few years. I was overpaying for a while, but stopped that (on the advice of my financial guy and several posts on here). I have a savings account that is due to mature in 3 years which should cover the outstanding mortgage (terms and conditions apply), so that was as rock solid a plan as I could handle.

Then this weekend, I (finally) did some maths, and roughly determined that my mortgage interest savings will be pretty minuscule, less than 4k, which I admit surprised me considering how much time I was going to be saving off the life of the mortgage (10-12 years).

However, I also have had a plan to increase my company pension contributions once the mortgage has been paid off. My pay cheque doesn't allow for me to pay a mortgage and the max pension contribution, sadly. However, if I paid off my mortgage, I could easily increase my contrib to the maximum. Going for maximum now vs in 10-12 years does seem to have quite a large effect on my pension if my back-of-the-envelope calculations are anything to go by.

Most of the threads I could find seemed to be a choice between paying off a mortgage OR increasing pension, but what about increasing pension BY paying off mortgage?
 
Sorry Billy

But your post makes very little sense at all.

Let's say you have mortgage repayment of €500 a month but you could afford to pay €700.

Then you don't "pay off your mortgage to increase pension contributions"

You simply use the extra €200 to pay pension contributions.

Brendan
 
Tks Brendan, I can see the confusion, so let's put some sample figures behind it.

Right now, my mortgage is 100k which I'm paying off at 500 per month for the next 15 years. However, in 3 years, when the mortgage will be say 90k, I'll have savings maturing that are worth 90k, so could be used to pay off the mortgage then and there.

On the other side, i'm paying 10% of my net wage into a pension right now. I can't afford to increase that to the max 20%, but in 3 years time, when I pay off my mortgage, I could increase to 20% immediately. Not paying off my mortgage in 2021 would mean going to max pension contrib 12 years later which looks like a significant difference in the long run.

The 500 per month on mortgage and 10% on pension is the max I can afford on both right now -- there is no spare cash in the budget to increase pension.
 
Why have you tied up your savings like this when you could be either paying off your mortgage or contributing to a pension?

What sort of product is it? What are the penalties for partial early withdrawal?

You should consider partially cashing it and contributing to your pension.

Brendan
 
The account was opened in 2012 when I came into some money and had no immediate plans for it (rightly or wrongly, it's in the past) i figured putting it away for 10 years, let it increase and see what I can do with it then. Right now, I'm paying ~22% of my nett salary into my pension, my max is 25% so I'm okay with that gap, but in 2022, my max will jump to 30% and I'd prefer not to still be on 22%, so it behooves me to free up some of my salary so I can increase my contributions then. Hey presto, pay off my mortgage.

I think I've convinced myself :)
 
You say you won't be able to pay the max of 30% of your salary into your pension? Why not exactly - I assume living expenses and mortgage?

You have 2 options as I see it if you want to max your salary contributions; A - pay off your mortgage balance with your matured savings as you suggest. B - you could also use your matured savings to make your mortgage payments and cover the shortfall in your living expenses (that will be diverted towards pension). Option A will be slightly cheaper as per your calculations, but option B provides you with more liquidity if this is desirable. For example if you think that you could earn more investing your money than the rate you're paying for your tracker (plus tax). All depends on your risk preference really.
 
Niall, that's pretty much where I ended up. Originally, my plan was to use my savings, but if there's a shortfall use other funds to cover it - I wasn't 100% comfortable with this idea, so like you say, the plan now is to use the savings account when it matures to either pay off completely or reduce the monthly payment to an amount that would let me put my max into my pension (depending on the value of the savings account at maturity). That way, I'll still have some money left over.
 
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