Using your pension as a vehicle to pay off your mortgage can be a highly effective strategy.
The star of this video is the pension, not the interest-only mortgage. We could have compared overpaying a repayment mortgage vs investing in a pension, and we would have ended up with a similar result.
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0:00 Intro
1:30 Context
2:20 Pension Reminder
3:51 Example
7:26 Stress Test
8:57 The Upside
11:06 Key Considerations
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For many people, their mortgage represents one of the biggest financial burdens they face. The idea of paying it off can seem daunting, especially as retirement approaches. However, using your pension to pay off your mortgage is a strategy that more and more people are considering. There are several reasons why this approach can be highly beneficial.
First and foremost, paying off your mortgage with your pension can provide peace of mind. With your mortgage debt completely eliminated, you won’t have to worry about making monthly payments during your retirement years. This can alleviate a significant amount of financial stress and free up more funds to use for other expenses or to simply enjoy your retirement.
Additionally, paying off your mortgage with your pension can save you money in the long run. By using a lump sum from your pension to clear your mortgage balance, you will no longer have to pay interest on that debt. This can save you a significant amount of money over time, especially if you have many years left on your mortgage term. Furthermore, by reducing your monthly expenses, you can stretch your pension further and potentially avoid running out of money in later years.
Another point to consider is the potential tax advantages of using your pension to pay off your mortgage. In some cases, using a lump sum from your pension to pay off your mortgage can result in tax benefits. For example, if you have a substantial amount in a pension that would otherwise be subject to high taxes upon withdrawal, using it to eliminate your mortgage can minimize the tax impact.
It’s important to note that there are potential drawbacks to using your pension to pay off your mortgage. Withdrawing a large lump sum from your pension could result in a hefty tax bill, depending on your circumstances. In addition, it could reduce the overall amount of income you have available in retirement. It’s crucial to carefully consider the tax implications and the impact on your long-term financial security before making this decision.
Before deciding to use your pension to pay off your mortgage, it’s advisable to consult with a financial advisor. They can help you understand the potential benefits and drawbacks and determine whether this strategy is the right choice for your individual situation. They can also help you explore other options for managing and paying off your mortgage, such as refinancing or restructuring your loan.
In conclusion, using your pension to pay off your mortgage can be a wise financial move in certain circumstances. It can provide peace of mind, save you money in the long run, and potentially offer tax advantages. However, it’s important to carefully weigh the pros and cons and seek professional advice before making this decision. With the right guidance, you can make a well-informed choice that sets you up for a more secure and comfortable retirement.
The star of this video is the pension, not the interest-only mortgage. We could have compared overpaying a repayment mortgage vs investing in a pension, and we would have ended up with a similar result.
Best advice, I loved this as I am about to invest in uk property with 70k deposit (plus fees and more savings for furnishing and decorating) to buy my own place, but I am also treating it as my fourth investment, having two spare rooms for lodgers to cover this property mortgage and tax costs… and to build my equity whilst working my day job for my next investment.
If you've a left job and longer paying into that pension can you cancel your pension and get a refund?
But wouldn’t his interest be locked in… why would he refinance
This is amazing, indidnt even consider this as an approach. At what stage would it be wise to seek out an IFA?
Hi James
Wondering what your thoughts on this are now the lifetime allowance is being abolished?
Also I’m a Scottish resident and will soon have earnings in the 45% tax bracket so this is starting to look very appealing
How about just pay off the mortgage ASAP. Make extra payments towards the principle as much as possible. Then take all that money you were spending on the mortgage and invest aggressively.
Why isn’t everyone doing this? Probably because they have more than £150k in mortgage debt.
If you’re in London or the south, you are likely to be more heavily geared, so not paying the principal off of your highest interest bearing debt comes with higher risk.
But if you have paid most of it off, like in this example, then sure maxing out your pension payments could be financially wise.
If you lose your job income level at 55 or before. It does feel safe to have somewhere to live forever like after you finish your paying off your house
Can you buy that house if you have interest only mortgage ?