Back in the last century, buying your home followed a simple pattern.
You would buy a first home in your early twenties and spend the next 25 years paying off the mortgage. You might move up the housing ladder a few steps and pay a little more each month on the larger mortgage it required, but generally speaking, you could expect to be mortgage free by your fifties, leaving you free to concentrate on building up your pension.
But houses have become much more expensive, and many people have had to be spread their mortgage over a longer period. 35 year or even 45-year terms are now becoming more common. Young buyers are opting for these long mortgage terms to cut their monthly repayments.
More than one million homeowners have taken out โultra-longโ mortgages in the past three years, which they will still be paying off into retirement according to Bank of England data.
Longer mortgage terms help make monthly repayments more manageable when interest rates are high โ but still having mortgage debt in retirement leaves you with a serious problem.
At Continuum we are looking at what you can do if you still have a mortgage to pay after you stop working.
The rise of the ultra-long mortgage
The need to get on the housing ladder might be your main priority when you are young, and the interest rate hike has made it harder than ever. Stretching out your mortgage term might be the only solution. Over the past two years, there has been a 139% rise in the number of under 30s taking out a mortgage that goes past their state pension age.
But although cutting the monthly repayments now might be welcome, having repayment to make when you have a pension, rather than a salary to live on will be much less so.
You canโt gamble with your retirement prospects. You need to think about a repayment strategy that will help you avoid retirement poverty.
Carry on working
The days of compulsory retirement at 65 are gone. You could work past state pension age, meaning you will still have income to service your mortgage. If you enjoy your work it might not be a sacrifice โ but not everyone has that luxury.
Remortgage to a shorter term
If your income has increased after a few years, you could remortgage to a shorter term deal. This will increase your monthly repayments, but with some of your capital paid off and possible increases in the value of your home, you may have a better Loan to Value ratio. Borrowing a smaller proportion of the value of your home may mean lower rates, potentially making a shorter term more affordable.
Overpay your mortgage
Your income may rise as your career develops. You could start overpaying your mortgage. This could mean paying it off years ahead of schedule. Not all lenders welcome overpayments. Youโll need to check that yours does โ or remortgage to one that offers this kind of flexibility.
Repay your mortgage from your pension
If you have a large enough pension pot, using the 25% lump sum to pay off your mortgage might be a solution. But millions of people are not saving enough for their retirement. If some of your limited retirement savings has to be used to clear a mortgage balance at retirement you might be at even greater risk of poverty in old age.
Getting an expert overview of your current pension plans and looking at ways to boost them might be the first step.
Downsize
Moving out of a home you have owned for years may be an unpleasant prospect for some โ but for others, downsizing and moving away to a new location is something to aim for. That cottage in the country or flat with a view of the sea could potentially leave you mortgage free.
Lifetime mortgage
A lifetime mortgage is a type of Equity release, with a loan secured against your home, but the money doesn't usually need to be repaid until you die or move into residential care. You could possibly use one to pay off your outstanding mortgage, allowing you to enjoy living in your home with no further repayments to worry about.
Retirement mortgage
It may be possible to get a mortgage in your 60โs and beyond, if you have an adequate pension income. Specialist retirement mortgages are not for everybody, but they may provide a simple solution if a conventional mortgage has not been enough for your needs.
Getting some help
If you are worried about paying a mortgage in retirement, you need to act now. To discuss the solutions available, simply call us at Continuum.
https://www.mirror.co.uk/money/personal-finance/dwp-state-pension-inheritance-payment-32802737
Surge in homeowners paying a mortgage in retirement | MoneyWeek
The information contained in this article is based on the opinion of Continuum and does not constitute financial advice or a recommendation to a particular mortgage product and you should seek independent financial advice before embarking on any course of action.
Your home may be repossessed if you do not keep up repayments on your mortgage.
You may have to pay an early repayment charge to your existing lender if you remortgage.
A lifetime mortgage is a loan secured against your home. To understand the features and risks, ask for a personalised illustration. Equity Release will reduce the value of your estate and may affect your entitlement to means tested benefits.
Home Reversion plans and lifetime mortgages are complex products. A lifetime mortgage is a loan secured against your home. To understand the features and risks, ask for a personalised illustration. Equity Release will reduce the value of your estate and may affect your entitlement to means tested benefits.
A pension is a long-term investment; the fund value can go down as well as up and this can impact the level of pension benefits available. Pension Income could also be affected by interest rates at the time benefits areย taken. Pension savings are at risk of being eroded by inflation.
The Financial Conduct Authority does not regulate taxation advice.
The tax treatment of pensions in general and tax implications of pension withdrawals will be based on individual circumstances, tax legislation and regulation, which are subject to change in the future.
Accessing pension benefits early may impact on levels of retirement income and your entitlement to certain means tested benefits.
Accessing pension benefits is not suitable for everyone. You should seek advice to understand your options at retirement.
