Pay off your mortgage or increase your pension

MorningStar

Hi,

I was wondering with the SSIAs coming to an end what to do with the contrabution I am used to giving in. PArt of me was thinking I should increase my pension and the other thinks it may be better to increase my mortgage payments to reduce the years.

Has anybody got an idea of any formulas or equations that I could work it out. My general thought is if I have longer without a mortgage than I have more money to save later on for my retirement. No plans for kids so to have a large asset to give away at the end is not much use to me.

magpie

Paying into a pension fund gives you tax relief at the maximum rate, paying into your mortgage will reduce your term, but this is only worth considering if you're not planning on moving house again in the next 25/30 years.

If you're under 30 and have no family I'd personally blow the whole lot on something you'll enjoy.

MorningStar

magpie wrote:

If you're under 30 and have no family I'd personally blow the whole lot on something you'll enjoy.

Just over 30 and married. I just don't want to have to work all my life and the mortgage will keep me working. We all have family just no kids of our own. Security in the future is therefore more important to us as we will be taking care of ourselves.

Note I am looking for the formulas and how to work it out so I can decide which I think is best based on detail. Opinion on how to live life is for other threads:)

magpie

Sunday Businesss Post this week had a good piece on this whole issue, dig out a copy.

jimmycrackcorm

I'm planning on paying off the mortgage early to have the security that if I lose my job at least I won't lose my roof. However I'm changing my mortgage to one where my ssia savings are offset against the mortgage but are still available to me.

magpie

Ebs?

MorningStar

THe SBP article is fine but doesn't tell you how to work it out in basic terms to compare with a pension. I want to work it out! Does anybody know how or where somebody else might know.
Jimmy I will at least do the same as you plan but again I want to work out the figures so I know where the gains and losses are.

These are big decissions and I don't want it to be some finger in the air decision. One of us gets paid every two weeks so that in itself makes a difference on the right type of mortgage.

Raiser

Been wondering about this too - is it not good sense to throw 10 or 15 thousand into your mortage when you have it to reduce your term and hence interest paid? IE doesn't it free you/make you a home-owner sooner and make the whole lot cheaper in the long run????

MorningStar

Raiser wrote:

Been wondering about this too - is it not good sense to throw 10 or 15 thousand into your mortage when you have it to reduce your term and hence interest paid? IE doesn't it free you/make you a home-owner sooner and make the whole lot cheaper in the long run????

Yes it would but how much time it saves you depends on the figures. I want to work it all out.

The monthly payments are also a factor which would make a difference too.

But like of of these things you have to say the right things such as take this of the principle to make sure they don't think you are prepaing your payments.

Tazz T

Seems the sensible balance would be to pay the money into the mortgage, then put the money you save on your monthly repayments into your pension.

cgf

This might help

http://www.simplymortgages.ie/calcrepayments.asp

you might also want to verify that you can make early repayments without any penalty/charges/fees.

Scruff

from indo breaking news:

The Pensions Board has recommended that the State top up contributions to Personal Retirement Savings Accounts in a similar way to the SSIA scheme.

In a review of the pensions situation published today, the board recommends a range of measures designed to boost pensions coverage.
The review was commissioned amid growing concerns about the fact that 900,000 private-sector employees have no pensions.
Commentators believe Ireland is facing a ‘pensions time-bomb’ unless action is taken to address this situation.
The most noteworthy aspect of today’s review is a proposal that the Government make contributions to PRSAs matching the sums being placed in the accounts by workers themselves.
PRSAs were introduced a number of years ago in an effort to increase the number of people with pensions, but they have so far failed to attract much interest.
Other recommendations contained in the review include allowing people limited access to PRSA funds before the age of 45, as well as higher tax relief for pension contributions and incentives for people to reinvest their SSIA savings in private pensions. Social and Family Affairs Minister Seamus Brennan has promised to consider the proposals, but said the cost of the measures would have to be evaluated before any decision was made.

also heard a rumour that the SSIA type pensions were to be introduced and tax releif abolished.

Probably more concrete details will come out in the next few weeks.

MorningStar

cgf wrote:

This might help

http://www.simplymortgages.ie/calcrepayments.asp

you might also want to verify that you can make early repayments without any penalty/charges/fees.

That is more like it now I just need a pension calculator too. Would saving you mortgage payments in the time saved boost your pension enough to at least balance it out.

I am fully aware there are many variables that may prevent this from actually working out.

I am also aware that I will inherit some things in the future that may be my pension so I have that as a fall back which not everybody else does.

scargill

this mortgage calculator will help you with some figures.

you can look at the effect of paying a lump sum off the principle or the effect of paying an additional €254 (for example) a month off the mortgage.

masterK

The Moneymate website will probably be a good place to start to get a handle on likely pension returns, although since it is such a volitile market it's impossible to put a figure on likely future growth.

The first thing to do is compare your mortgage interest rate (including any likely future fluctuations) against the rate of return a pension is likely to give. Also consider the fact that there is tax relief on pension payments.

It may be worthwhile to check with you mortgage lender how paying off a lump sum will affect your interest payments, as you're probably aware the amount of principal vs. interest you pay off monthly on a mortgage changes every month. Your first mortgage payment would probably be 90% interest and 10% principal and your last the reverse. The reasoning behind this being that if you pay off a mortgage early the lender still gets a fair chunk of interest from you.

spunkymunky

scargill wrote:

this mortgage calculator will help you with some figures.

you can look at the effect of paying a lump sum off the principle or the effect of paying an additional €254 (for example) a month off the mortgage.

Adding the payments youve been paying to the SSIA might be a good idea. For the past 4-5 years youve lived without this money so you would be used to it know. Or lodge have to the mortgage and half to your pension.

Why not invest the money in a yearly deposit account and every year lodge the the interest into the mortgage. This way you still have the lump sum should you need it and also, you are shortening the term of the mortgage.

Kinetic^

Why not invest in something else like shares, foreign property etc.

I don't think that putting the SSIA into your mortgage is that good of an idea.

Think of the time value of money. ATM, I'm paying about €950 of a mortgage and I'm in my first year. By my 20th year of the mortgage €950 will be worth nothing.

your pension is probably your best bet but again I think that shares maybe a better way to go as you'll have alot more control over it.

ronbyrne2005

stick it into pension as with the tax benefit you get 40% extra immediately and pensions have returned 10% per annum over last ten years. leave your mortgage which is only costing around 4% per annum and with inflation at 2.5% you are only really paying 1.5% real interest.once interest rates stay low invest in the higher yielding tax advantagous pension.

Sponge Bob

MorningStar wrote:

Just over 30 and married. I just don't want to have to work all my life and the mortgage will keep me working.

Here is how I see it.

1. Pension, very very tax efficient but.

a) is there a history in yer family of dropping dead at 50 ?
b) will you have to wait till 67 to get your hands on any of it ?

I say match your employers contribution for now out of income .

2. Dublin

Mortgage 300k (1500 a month) rent in the area for that pad (1100 a month) I cannot stop working becuase it will not pay for itself every month

were

Mortgage 200k (1000 a month) rent in the area for that pad (1100 a month) I can stop working and travel a bit becuase it WILL pay for itself every month

Therefore I would have a result in a few years if I knocked 100k off that mortgage and brought it to a level where the 'asset' can 'self finance . Can be done in 5 years and then you are 35 can can piss off for a few years travelling if you wish ...or do a course or whatever.


3. Conclusion , I would put the money in the mortgage at 30 to give you room to manoever at 35 and maybe change lifestyle or whatever. Course the plans will change like TOTALLY DUDE if you have kids

ronbyrne2005

remember when you stop paying into ssia you will have extra money every month that would have been going into your ssia,pay this into your pension too or increase your mortgage payments if interest rates rise substantially.

MorningStar

Sponge Bob wrote:

Here is how I see it.

Mortgage 300k (1500 a month) rent in the area for that pad (1100 a month) I cannot stop working becuase it will not pay for itself every month

were

Mortgage 200k (1000 a month) rent in the area for that pad (1100 a month) I can stop working and travel a bit becuase it WILL pay for itself every month

I think you might want to look a little closer at the figures and the reality of renting property out. There are tax breaks such intrest relief and income tax on your rent. Combined with maintainence and periods when the property isn't rented etc...
So if you rent out your place for only 10 months a year (recommend figure for revenue from private rental) and a washining machine needs replacing it will not pay for itself. The tax man might not catch you straight away but I can see no declaration of rental income being a big cash cow in 20 or 30 years.

Anyway I get to travel with work a bit too much as is. Not saying I won't go traveling just that woudn't drive me more just the freedom to do what ever I want even just working in a shop sounds good. I aiming for little stress

I really just wanted a set of formulas or such to help work out the facts as best I could. I really thought this section of boards would be a bit more clued in. The mortgage calculators are good but I need the other pension comparison part.