Finance In Your Fifties (Part One)

Your fifties can be a time of financial plenty for many people. The chances are that the children have left and set up homes of their own, your mortgage could well be paid off, and  you might even be considering early retirement – which you may be able to do as early as the age of 55.

But when it comes to matters of finance, you can never afford to take things for granted. At Continuum we know how important it is to make the right arrangement and plans to make the most of your financial situation. Over three articles, we’ll look at the ways we can help you look forward to a better quality of life in your fifties and beyond – and we start with a look at your biggest asset – your home.

Your home, your income – both short and long term – and your retirement should probably be your main financial priorities once you have turned 50.

Your home is probably a very good place to start. It may still be a major cost, but it is also a major asset. If you have paid off your mortgage, all well and good – you could be sitting on a steadily appreciating property, which you can use in a number of ways in the years to come.

If you haven’t paid it off, you should probably look at ways to do so – which will release you from a major commitment, and free up funds for you to use elsewhere. The first step is to ensure your mortgage repayments are as low cost as possible, which will probably mean re-mortgaging, to a deal with a lower interest rate.

With the current bank rate at a historic low, there are some very low mortgage rates around. It is a very good time to find a low-rate deal – and to lock yourself into it for as long as possible.

Reducing your mortgage interest can help in two ways. It can, of course, simply reduce your monthly repayments giving you more cash to enjoy. But you can make it the basis of a strategy to pay off your mortgage sooner rather than later.

There are two ways to do this.

Firstly, when you re-mortgage, instead of keeping your term the same, reduce it as much as possible and keep your monthly repayments the same. This is a very shrewd move because you know you can already cover the payments comfortably. You’re locking in historically low rates to shave years off your mortgage.

Secondly, most lenders will let you make some overpayments, typically up to 10% of your monthly mortgage repayment. Overpaying your mortgage in this way gives you a flexible way to pay it off earlier – you can always revert to standard repayments if money is tight. If you have savings earning little interest elsewhere it could be the simplest way to use them wisely.

Reasons to re-mortgage

Re-mortgaging for a better rate is usually a good idea, but it might not work for everybody. It’s not just interest rates that you should take into account when thinking about your mortgage; every lender has its own terms and conditions. Although sometimes these can work in your favour, if your mortgage has only a few years left to run, the fees involved might wipe out any savings.

Be careful. Exit fees and early repayment costs charged by many lenders should all be factored into your decision to re-mortgage. You could face early repayment charges that can be as much as 5% of your outstanding loan, so you need to ensure it is worthwhile. The simplest way to do that is to discuss matters with your Continuum advisor, who can point out the problems as well as the advantages.

Equity release

But there could be another solution. Equity release, providing you are aged 55 and over. Equity release has become more popular in recent years, and there are several types of plan, but the most popular type of equity release schemes are lifetime mortgages.

You don’t have to have paid off your original mortgage to use them.

You retain 100% ownership of your home, and receive a lump sum, which you can use to pay off your existing mortgage. But unlike the mortgage you used to buy the house in the first place, there are usually no monthly payments to make.

Interest is added to the lifetime mortgage loan throughout your lifetime. The loan plus interest is paid back when your home is sold when you move into long-term care, or when you and your partner die.

You can usually release up to 50% of the value of your property with a lifetime mortgage, depending on your age. The older you are, the more generous providers are likely to be.

Most schemes offer a no negative equity guarantee, meaning you will not owe more than the property value, however, if you are considering leaving an inheritance for your family you may need to discuss Equity Release with them.

Continuum will only recommend Equity Release schemes from lenders who are members of the Equity Release Council.

Depending on the capital growth your home has enjoyed since you bought it, you may have enough to pay off your original mortgage and release some spare cash to boost your retirement plans.

Taking advice when re-mortgaging is essential and an expert will find you the best deals in the market and help work out whether re-mortgaging will really save you money. An independent, whole of market broker is not tied to a particular lender and will be able to compare a wide range of deals.

At Continuum, we are independent, and have the expertise to help you find the solution that fits your needs. Calling us could be the simplest way to make paying off your home come a great deal sooner.

The information contained in this article is based on the opinion of Continuum and does not constitute financial advice or a recommendation to a suitable Mortgage or Equity Release product, you should seek independent financial advice before embarking on any course of action.

Equity release will reduce the value of your estate and may affect your entitlement to means tested state benefits.

A lifetime mortgage is a loan secured on your property.

Home reversion plans and lifetime mortgages are complex products. To understand the features and risks, ask for a personalised illustration.

Your home may be repossessed if you do not keep up repayments on your mortgage.

Accessing pension benefits is not suitable for everyone. You should seek advice to understand your options at retirement.

You may have to pay an early repayment charge to your existing lender if you re-mortgage.