With interest rates on the rise, we often get asked at our financial education sessions, is it best to pay off your mortgage or pay into your pension?
Jonathan Watts-Lay, Director, WEALTH at work, a leading financial wellbeing and retirement specialist – helping those in the workplace to improve their financial future said, “Deciding whether to pay more off your mortgage or save more into a pension is a difficult decision, as both are really good financial practices.
For some, overpaying on your mortgage before you have to renew at a higher rate could be a good idea, especially if you are going to struggle to pay the new higher monthly rate, as you may be able to secure a better deal by paying more off in advance. However, there are often limits on the amount you can overpay without paying a penalty, so make sure you check this first.
Equally, very few people are saving enough for retirement, and there are so many benefits to saving more into your pension, including the tax relief and the benefit of long-term compound growth, especially if your employer will match your payments.
In reality, all of us are different, and there are many things to consider before deciding what is best for you beyond interest rates and investment growth. A lot depends on your attitude to risk, financial situation, and need for financial security. In fact, some people will decide to hedge their bets, and do both.”
He concludes, “Many employers offer financial education in the workplace, to help their staff to understand their finances so they are better prepared to make decisions like these. Speak to your employer to find out what is available.”