Smallish mortgage

[Poppygoestheweasel]

I have a smallish mortgage 48 k currently at rate of 1.99 that is due to expire at the end of February 2023 . Do I use my pension nest egg to pay half of it or all of it off leaving me with a much smaller pension nest egg.

Friend suggested reducing it and then rather than another mortgage pay off the remainder using 0% balance transfer card but this doesn't make any sense to me and surely would end up more expensive ???

I wouldn't pit it on a card, that 0% rate would run out fairly soon.

Are you still working? If so how long left until retirement? You would need to weigh up how much your pension pot would grow in this time versus cost of repaying g the rest of the mortgage.

How old are you ?

Okay, so money saved is the same as money earned.

If you had a 12 year mortgage on £50k it would cost you about £5.5k a year in payments and £16.5k in interest over the 12 years- assuming 5% rate. So that would be a guaranteed saving of £16.5k but it would put all the £50k into the house. So you would lose growth.

If you had that £50k invested outside the house and it grew at 5% a year and you withdrew the mortgage payments from this pot you would have about £7k left in the pot when the mortgage was finally paid off.

If you didn’t take the money out of the pension pot each year then at 5% growth rate it would grow to £90k in 12 years. At a 9.5% growth rate it would grow to £160k.

But your investments might not grow, they might lose value or they might grow at 10% a year. On top of this, leaving the money in the pension will mean that it grows for a lot longer, it will keep growing even when you are retired.

But a guaranteed saving of 5% is not to be laughed off - so I would say it purely depends on your circumstances - if you can comfortably afford the mortgage and in good health then leave the pension alone. The younger you are the more likely you should not touch the pension.

The other factor is the size of the £50k compared to the rest of you pension - if you have £1million in a pension then taking £50k out to pay the mortgage off sounds more than fine.