I've been wondering for a while if I would be better off stopping my pension payments and paying the money off my mortgage and paying it off more quickly. Then I would rent out the house and start paying into a pension again, potentially with more money as I'd have the rent from the house.

What I would like is to know if there are existing tools, or just an outline of the method, which I can plug numbers into to see the differences in monthly incomes when I retire.

I'm in the UK. I might rent it out before the mortgage term is up, and the rental income should cover the current mortgage payments & upkeep and not much else if I do that, so effectively the house could buy itself over a longer term if I didn't make overpayments, but what I'd like to workout is if I payed off the mortgage earlier by paying my pension payments into the mortgage instead would that make me better off in the long term.

I imagine I'd need existing pension pots, amount paid into pension, employers contribution, pension growth rate, amount of mortgage, mortgage rate, years remaining on mortgage, age, retirement age, amount paid into pension on restart, but I'm not sure if there are other things to consider.

After writing down all of the things I think I'll need I'm starting to feel like this might be a bit of an ask. If the above isn't possible then just a way to calculate potential pension returns might be enough to put me on the right track.

Basically I would like something like this pension calculator but where I could put all of the values in a row in a spreadsheet and see the number change, and where I could delay contributions for more than 5 years.

  • 2
    The devil is always in the details. What country are you in? What is your mortgage rate? If you rent the house out, where will you live? Why do you think it needs to be paid off to rent it out? – JoeTaxpayer Nov 25 '14 at 22:41
  • @JoeTaxpayer I've updated the question with additional details. I would like the mortgage rate to be part of the formula if possible. – Sam Holder Nov 25 '14 at 23:12

Respectfully, I am of the opinion that you are mixing issues.

Paying a mortgage off early vs investing is a question that's been well discussed at Money.SE. If you project a higher tax adjusted return on the investments than your current mortgage rate, invest. Else, pay the mortgage down.

If the rent covers the mortgage, you can maintain the investing. It doesn't matter for this discussion if the rent produces a profit, so long as all expenses are covered.

Renting aside, in the US, now, my mortgage is 3.5%. 2.6% after taxes. So long as I expect a return well above this level long term, I'll stay investing, and let the mortgage die its slow death. Another decade or so.

I'm sorry I can offer a formula, it's "less" "about the same" or "more." The mortgage is fixed, right? But the market return is unknown.

  • But doesn't the additional income from the rental, if used as additional pension contributions once the mortgage is paid off, have significant effect on the final pension payments? I want to be able to see the difference between pension returns from contributing £100 a month from now vs £500 a month in 8 years (say) with rental income available in 16 years or 8 years. I would like the rate of pension growth to also be a variable in the calculation, so I can see the differences in pension grows at 3%,5%, 7% etc – Sam Holder Nov 25 '14 at 23:31

It's not an easy calculation so I made this demonstration that compares a fixed investment with a 100% mortgage, for a simple case. (Obviously if you lessen the mortgage with a deposit it's somewhere between the extremes.) The demonstrations shows some definite differences at higher interest rates. You can probably decipher the calculations in the code if you're interested. It's intended to be legible.


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