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  • FIRST POST
    • HartJ
    • By HartJ 6th Jul 17, 7:54 PM
    • 11Posts
    • 4Thanks
    HartJ
    Mortgage Free - Or Not?
    • #1
    • 6th Jul 17, 7:54 PM
    Mortgage Free - Or Not? 6th Jul 17 at 7:54 PM
    Hi

    My partner and I are considering the early retirement dream and are in the early stages of planning.

    During our planning, we keep seeing that becoming mortgage free is the first step on the ladder to early retirement. This seems eminently sensible if you have children who you may want to pass a house on to and to reduce outgoings in later life however we don't have children and both of our families are fairly sensible with money too therefore being mortgage free makes little sense to us. We would prefer to live in our own home though without the worry of rents going up, maintenance issues and the uncertainty of it not being our own home (e.g. landlord decides to sell at relatively short notice).

    The only solutions we've thought of are:


    Rent with associated costs in later age and discomforts

    Stay in own home and have a minimal mortgage

    Stay in own home and review equity release schemes

    We've discussed this a great deal and are struggling to find a solution - has anyone else come up against this and if so, what did you decide to do?

    Thanks in advance for any thoughts!
    “If you have enough book space, I don't want to talk to you.” - Terry Pratchett
Page 1
    • Spreadsheetman
    • By Spreadsheetman 6th Jul 17, 8:23 PM
    • 44 Posts
    • 33 Thanks
    Spreadsheetman
    • #2
    • 6th Jul 17, 8:23 PM
    • #2
    • 6th Jul 17, 8:23 PM
    What are your circumstances at the moment re. property and how old are you?
    • Thrugelmir
    • By Thrugelmir 6th Jul 17, 8:45 PM
    • 55,143 Posts
    • 48,333 Thanks
    Thrugelmir
    • #3
    • 6th Jul 17, 8:45 PM
    • #3
    • 6th Jul 17, 8:45 PM
    Choose to live in a house out of practicality , size, location etc. Plan early for ones later years. My now elderly mother lives in a house which is on a street on the top of a ridge. In every direction there's a slope or hill. Even up to the front door. Said she wanted to move some years back. Now won't budge. Which is understandable. I vowed not to make the same mistake.
    “ “Bull markets are born on pessimism, grow on skepticism, mature on optimism, and die on euphoria. The time of maximum pessimism is the best time to buy, and the time of maximum optimism is the best time to sell.” Sir John Marks Templeton
    • Kynthia
    • By Kynthia 6th Jul 17, 8:56 PM
    • 4,962 Posts
    • 6,935 Thanks
    Kynthia
    • #4
    • 6th Jul 17, 8:56 PM
    • #4
    • 6th Jul 17, 8:56 PM
    How near retirement are you and are you currebtly working with a good income?

    I'd have a chat with a mortgage broker, preferably one with experience of lifetime mortgages and equity release and see what the options are. I'd also see whether your income and current pension mean you can get an interest only mortgage for longer than you're likely to live in the property. The monthly payments should be low and the balance of the mortgage can be settled when you sell or from your estate after your passing. It might not be possible but it's something I'd look at.
    Don't listen to me, I'm no expert!
    • London Town
    • By London Town 6th Jul 17, 9:04 PM
    • 295 Posts
    • 387 Thanks
    London Town
    • #5
    • 6th Jul 17, 9:04 PM
    • #5
    • 6th Jul 17, 9:04 PM
    OP, it intrigues me that you see being mortgage free as only relevant if you have children or family to leave it all too. I have no children to consider, but still dream of being mortgage free.

    All my retirement planning pivots around clearing my mortgage by 60. I can only afford to live on my occupational pension if I lose the mortgage, which is my biggest out going.

    However, you've made me question this and it's interesting to hear other views. Unless you have a big pension due, don't most people focus on being mortgage free by 65 at the latest?
    • HartJ
    • By HartJ 6th Jul 17, 9:08 PM
    • 11 Posts
    • 4 Thanks
    HartJ
    • #6
    • 6th Jul 17, 9:08 PM
    • #6
    • 6th Jul 17, 9:08 PM
    Hi

    Thank you for the quick replies!

    Spreadsheetman - we both currently live in my mortgaged property. My partner has a house that he lived in before we met which is now rented out with a buy to let mortgage. I am in my mid forties and my partner in his late forties.

    Thrugelmir - I agree with everything you have said. We would both love to live in a coastal or semi rural setting but the practicalities as we age and simple convenience means that we are looking for a small town with good connections and what estate agents call "amenities". We are already planning our house moves as our current home is great for work but not for our retirement.

    Kynthia - We are both currently working full time with good incomes. We are looking to stay in full time work for approximately 5 - 8 years based on current forecasts. Thank you for your advise re the lifetime mortgage - it's something we considered but the overall payments for the ones we looked at were considerably higher. Might be worth speaking to a broker...
    “If you have enough book space, I don't want to talk to you.” - Terry Pratchett
    • HartJ
    • By HartJ 6th Jul 17, 9:11 PM
    • 11 Posts
    • 4 Thanks
    HartJ
    • #7
    • 6th Jul 17, 9:11 PM
    • #7
    • 6th Jul 17, 9:11 PM
    London Town - Sorry, just seen your reply! I think, for us, it's more the idea of having such a vast sum of money tied up that we could never use that concerns us. I agree that mortgage free seems like the obvious thing to do when considering financial independence however, there is the cost of clearing the mortgage but then also having that money tied up and not being able to use it. Hope that makes sense?
    “If you have enough book space, I don't want to talk to you.” - Terry Pratchett
    • London Town
    • By London Town 6th Jul 17, 9:25 PM
    • 295 Posts
    • 387 Thanks
    London Town
    • #8
    • 6th Jul 17, 9:25 PM
    • #8
    • 6th Jul 17, 9:25 PM
    London Town - Sorry, just seen your reply! I think, for us, it's more the idea of having such a vast sum of money tied up that we could never use that concerns us. I agree that mortgage free seems like the obvious thing to do when considering financial independence however, there is the cost of clearing the mortgage but then also having that money tied up and not being able to use it. Hope that makes sense?
    Originally posted by HartJ
    Thanks HartJ, that does make sense. You make a very fair point about ending up with alot of money tied up that you can't use. My late father did equity release which worked well for him and it's certainly something I'd consider.
    • HartJ
    • By HartJ 6th Jul 17, 9:35 PM
    • 11 Posts
    • 4 Thanks
    HartJ
    • #9
    • 6th Jul 17, 9:35 PM
    • #9
    • 6th Jul 17, 9:35 PM
    London Town - it's a real conundrum isn't it? It'd certainly be easier to live on a pension or savings without paying a mortgage or rent but having hundreds of thousands locked away which would be difficult or expensive to access seems wrong too. Plus of course, having to pay a mortgage in later years. We've also discussed having a family member buy 50-75% of our later years property at the current market rate with the knowledge that it would be signed over to them on death but that brings a whole new set of problems! Equity release seems tricky to navigate too.
    “If you have enough book space, I don't want to talk to you.” - Terry Pratchett
  • jamesd
    Becoming mortgage free by paying more than required makes you poorer regardless of whether you have children or not. Only do it if you have a passion for getting rid of it and are willing to make yourself worse off to get it done. The reason is simple: investments typically grow at a higher rate than the mortgage interest cost. Every Pound of avoidable mortgage paying loses you the compound growth on the difference between investment returns and mortgage interest rate.

    For early retirement planning you should look to either have an interest only mortgage or one with an end date as far into the future as possible, say 85 or older. This has three big advantages because of the lower mortgage capital payments:

    1. More money for investing, typically pension investing.
    2. Lower mandatory payments in the highest financial stress years between retiring and state pension age.
    3. Can make capital payments out of pension money on which you have received pension tax relief after age 55. Tax relief on your mortgage payments this way is a very good thing.

    A study has also found that spending typically declines by about 35% between 65 and 80, so exploiting that knowledge to pay when you have least use for income, later in life, can be a good move. A nice side benefit is more time for compound investment growth.

    If you do have a passion for getting rid of a mortgage, at least try to do it after 55 with money you've received tax relief on.
    Last edited by jamesd; 08-07-2017 at 12:42 AM.
  • jamesd
    All my retirement planning pivots around clearing my mortgage by 60. I can only afford to live on my occupational pension if I lose the mortgage, which is my biggest out going.

    However, you've made me question this and it's interesting to hear other views. Unless you have a big pension due, don't most people focus on being mortgage free by 65 at the latest?
    Originally posted by London Town
    Most people do and it's silly: why plan to make payments just before the big increase in income from the state pension which makes it easier? That's a plan for masochists only.

    Your live on occupational pension only without the mortgage is based on a logical fallacy: that all of your extra mortgage capital payment money would vanish if you didn't use it for mortgage paying. It doesn't vanish. Instead you can invest it and even get pension tax relief on it. The income and capital from the invested money can then be used to pay the mortgage and more, courtesy of the tax relief and compounded growth.
  • jamesd
    we both currently live in my mortgaged property. My partner has a house that he lived in before we met which is now rented out with a buy to let mortgage.
    Originally posted by HartJ
    Do you know that it's usually cheaper to use a residential mortgage than a BTL mortgage? You might be able to save a lot of money by increasing the mortgage secured on your property to repay the BTL mortgage secured on the rental property. The deductibility of mortgage interest isn't affected by a different property being the security for the borrowing.
    • beaker141
    • By beaker141 7th Jul 17, 10:42 AM
    • 450 Posts
    • 182 Thanks
    beaker141
    Most people do and it's silly: why plan to make payments just before the big increase in income from the state pension which makes it easier? That's a plan for masochists only.

    Your live on occupational pension only without the mortgage is based on a logical fallacy: that all of your extra mortgage capital payment money would vanish if you didn't use it for mortgage paying. It doesn't vanish. Instead you can invest it and even get pension tax relief on it. The income and capital from the invested money can then be used to pay the mortgage and more, courtesy of the tax relief and compounded growth.
    Originally posted by jamesd
    I assume this is a fairly new line of thinking though made possible by the pension freedoms introduced. If it was back to the old scheme of being forced to buy an annuity it would be a bit scarier - knowing that money still had to pay the mortgage.
  • jamesd
    The tax free lump sum has been available far longer than that and the requirement to buy an annuity was first removed when alternatively secured pensions were introduced in 2006. The big thing that the recent pensions did was remove the limit on how fast you can take out taxable money. The previous system effectively forced you to use a lot of non-pension investing for early retirement so you could draw the money at a fast enough rate.

    But those freedoms finally did the job of making no annuity required very well known.
    • HartJ
    • By HartJ 7th Jul 17, 2:22 PM
    • 11 Posts
    • 4 Thanks
    HartJ
    jamesd - they are some very interesting ideas and I think I'd have to sit down with my partner and discuss them.

    I've always had it drilled into me that paying off the mortgage before retirement was THE thing to do due to the compound interest meaning that you paid far more than the original purchase price plus there is the security of not having to worry about the house payments when on a lower income i.e. pension however my mortgage interest rate is far lower than the return we are seeing on our investments. My current fixed rate doesn't end for just over 3 years so a lot depends on things like interest rates at the time, where we are in terms of our jobs and retirement planning. We envisage staying in the house until then however my partner's employer has recently moved their head office so if he stays with them, then the commute might be too much for him and another move might be on the cards before the move to an area where we wish to retire. Plus of course, global economic uncertainty, Brexit......

    Regarding my partner's house - he currently has an interest free mortgage on this but the idea of a residential mortgage with the deductability of mortgage interest is something we'll look into. Thanks for that!
    “If you have enough book space, I don't want to talk to you.” - Terry Pratchett
    • atush
    • By atush 7th Jul 17, 3:16 PM
    • 16,236 Posts
    • 9,909 Thanks
    atush
    We are already planning our house moves as our current home is great for work but not for our retirement.
    This is where you can downsize (either in size or price) so that you dont still have a mtg. You arent staying in your current house for retirement, so really your plans shouldnt be made as if you were?


    So if your rate is low now, I would concentrate on Pensions and S&S isas instead.
    • MallyGirl
    • By MallyGirl 7th Jul 17, 3:31 PM
    • 1,892 Posts
    • 6,311 Thanks
    MallyGirl
    this is our plan - to move West once we don't need to be in the Thames Valley for work. At current prices I reckon we could liberate £300k at least, with a nice switch to more land and less bedrooms as well.
    In some ways I wish I had cottoned on to the AVCs and S&S ISAs earlier but now I only have around £30k left on the mortgage which will make things simple as that will be gone well before early retirement. By 60 I plan to have £450k in S&S ISAs (plus growth) and £1m in combined (DH & mine) pension pots. That will meet my 'number'.
    • HartJ
    • By HartJ 8th Jul 17, 11:35 AM
    • 11 Posts
    • 4 Thanks
    HartJ
    Our plan is to stay in the current home until the mortgage fix finishes (the mortgage is not portable) and then upsize closer to work combining our income multiples for a few years. We intend to upsize in terms of both price and size. Our current home was originally just mine and was the perfect size for just me and whileas I live in a very minimalist fashion, my partner doesn't! It seems to fair to reduce the commute for a while and also to entertain the idea of a larger home.

    After this, we then intend to move north to take advantage of cheaper house prices and cost of living but also because we love the north and can't wait to move! In terms of the final mortgage, we are now unsure how much to retain - enough that's affordable? Enough to cover potential care home fees are covered? I suppose the best time to apply is shortly before early retirement as a larger mortgage might not be covered beyond a certain age or having a much lower income. It's all a balancing act
    “If you have enough book space, I don't want to talk to you.” - Terry Pratchett
    • HartJ
    • By HartJ 8th Jul 17, 11:58 AM
    • 11 Posts
    • 4 Thanks
    HartJ
    The other thought we have is whether to keep the current property being let out and maybe the one we currently live in as buy to lets to gain a passive income once we retire but we will need to look into the tax issues on that nearer the time.

    We both have investments, stocks and shares and AVCs, although my experiment with Vanguard hasn't proved too good so far!
    “If you have enough book space, I don't want to talk to you.” - Terry Pratchett
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