Dinero asked as follows at Economic Myths: Pensions (various myths):
Are you saying it is a financial error for anyone paying interest on a mortgage to simmultaneously pay into a pension? That seems a bit of a radical statement, not heard that before.
Basic rule of investing is that if you can get a better return on your investment than you pay for borrowing (adjusted for risk etc) then you should leverage up. If your investment returns are lower than the cost of borrowing, you should pay off debt first.
The mortgage interest rate is a fairly known figure; but the overall rate of return you will get on a pension fund, decades in the future, subject to the ravages of fund manager charges, with ever changing tax and regulatory rules etc. is a big unknown. You don't really need to worry about the (future) value of your house when making this comparison as that will be the same whether you pay off your mortgage or not.
So let us phrase the question thusly: would it be a good idea to do mortgage equity withdrawal and pay that money into your pension fund? In financial terms, that is exactly the same as underpaying your mortgage and paying more into your pension fund instead.
That was sort of the idea behind endowment mortgages and it didn't go particularly well (it didn't go that badly either in many cases, if truth be told).
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