Repay, Retain, Renegotiate – What Are Your Retirement Mortgage Options?
While traditionally it may have been expected that we would pay off our mortgages before we retire, the rising cost of living and increase in homeowners taking advantage of pension flexibility means that many of us now retire before we have finished paying off a mortgage.
Research from Hargreaves Lansdown suggests that one in six of us expect to be making mortgage payments past the age of 65, and many lenders are now extending the maximum age at the end of a mortgage term to 75 or older.
So whether you are considering your retirement or early retirement options, or have already retired and would like to adjust your mortgage burden, here are some of the options our expert advisers can help you explore.
Do I Have To Repay My Mortgage Before I Retire?
Depending on the small print of your own mortgage deal, there’s nothing to say that you must repay your mortgage before you retire – although your lender may wish to be kept aware of changes to your income, as these could impact your ability to keep up with your repayments.
Many lenders, recognising changing patterns of semi-retirement and home purchasing, now offer mortgages with older maximum ages, as well as specialist mortgage products for those in their 50s and 60s.
Retirees can significantly lower their monthly payments by re-mortgaging to take advantage of these better deals. Many homeowners who mistakenly believe they are not eligible to re-mortgage are paying more than they need to each month, with the average Standard Variable Rate (SVR) having risen from 4.61% to 7.12% in the last year.
Specialist mortgage products such as retirement interest only mortgages can lower your monthly payments while allowing you to continue living in your own home, although we advise speaking with one of our expert independent advisers to assess the impact on your estate.
Can I Retire Before I Repay My Mortgage?
The question of whether to repay your mortgage before you retire or to continue with your existing or a new mortgage after you stop working will depend on your individual financial circumstances and retirement plans.
You should consider your post-retirement income and the affordability of your mortgage payments, especially in light of the lifestyle you would like to live. Would having a mortgage limit your ability to travel, enjoy leisure activities or keep up with other likely expenses? Do your projected pension, savings or investment returns provide the required income, taking into account the possibility of further interest rate rises?
We can help you compile a comprehensive retirement income projection to help you visualise how a mortgage might fit – or not fit – into your retirement plans.
Can I Repay My Mortgage Early Before Or After I Retire?
With rising interest rates, many homeowners are investigating whether they might benefit from repaying their mortgage at the end of their current deal rather than re-mortgaging or moving to the lender’s SVR. With 60% of mortgages due for renewal in 2023 having been enjoying rates below 2%, the increased monthly payments on a new deal may be daunting for those considering or already enjoying their retirement.
The value of early repayment will depend on any associated charges applicable to your specific mortgage deal, and our expert advisers can help examine the small print and determine whether you might benefit. Those who choose to pay off a mortgage early may have a few options available:
Early mortgage repayment using savings
If you’ve built up a healthy savings pot, you may consider using some to clear your mortgage balance – but make sure you retain an emergency fund of three to six months worth of expenses and consider the impact on your long-term financial plans.
Early mortgage repayment using a pension lump sum
From the age of 55 (rising to 58 in 2028), those with private pensions can access up to 25% of their retirement savings as a tax-free lump sum. Our experts can help you assess the impact on the money you’ll have access to in retirement and the amount you’ll be able to pass on to loved ones.
Early mortgage repayment using equity release
If you’ve benefited from the long-term rise in the housing market, you may have significant equity in your home. Equity release can offer significant benefits but the impact on your estate makes consulting an expert essential.
Early mortgage repayment by downsizing
Selling up and moving to another property may leave you with a significantly reduced mortgage burden, or no mortgage balance at all. You may also enjoy the chance to live in a new area or benefit from a ‘future-proofed’ home which will be more suitable as you age. Careful examination of the early repayment obligations on your current mortgage deal will impact the extent to which this is the best financial option.
Our award-winning team are on hand to help you explore how to manage your mortgage and your retirement plans. Why not give us a call for a chat today?