My dad wants to pay off his mortgage......

Brainfish

So I thought I'd ask in here for some advice

Slight backstory....

My dad will be 66 in August. He is currently in full time employment and receiving his statutory pension. The only reason he is still working is because when he took out the mortgage he was self employed (he's not anymore) and they made him take the mortgage/endowment so that it would mature when he was 70.

He wants to pay off the mortgage so he and my mum can retire.

He has more savings than what's left on the mortgage (and no early repayment fee) so I advised him to pay it off

The advice he's looking for is as follows.....

1) He still has his endowment which isn't due to mature until 2012 (when he is 70)

Should he keep paying it or is there some way of getting the cash early without losing too much?

2) He is also considering selling the house and renting somewhere.

Is this advisable? (this is the main question)

His logic is that he can rent somewhere decent that will cost around £5k/year and the cash from the house would give him 20 years of rent. He's convinced that he's only got at most 5 or 6 years left in him so that would be more than enough. I'm leaning towards "Dad, don't be bloody stupid" but I'm no expert

Any advice would be appreciated

Thanks :T

Jonbvn

You have provided no information about his mortgage. What is the interest rate and other relevant T&C's?

How can anyone say they have only 5 years left in them? (I'm not that young and I will fight with every breath against the dying of the light).

hydsta

Is it an interest-only mortgage your dad has with an endowment policy alongside it to pay the mortgage off in 4 years? I can only assume it is because why else would you take out an endowment. If it is, he will have to pay the capital back when he's 70, as he would only have been paying interest so far. If he's got enough savings to pay off the mortgage early with no penalties then he should as no more interest would accrue and he would in effect save on 4 years of interest. He can still keep the endowment and collect the proceeds when in matures. Right now he is paying interest on a loan he can afford to pay back so he should just pay it off. Even though there would be less savings to generate interest on, he would also be saving on the amount he pays every month to the bank. He would probably end up saving more money.

As for the endowment, its only there to repay the capital sum at the end of the term, hopefully, as long as there isnt a shortfall. Most people depend on the endowment to repay the mortgage but your dad has the money available right now to repay it. You need to find out how much the endowment is likely to grow in 4 years and how much his savings will make him in 4 years. Which ever is likely to produce the lesser return should be used to repay the debt. As you're aware the endowment will likely have a surrender value on it which means you won't get back the full value of the policy if you surrender it early to pay the mortgage. Another option is to sell the endowment on the second-hand market where you could get more than you would by surrendering it. See an IFA before considering either option.

In regards to him selling the house and renting, that's just his personal decision. But it does seem odd, at his age owning your own property outright is a far better proposition than renting. Essentially he'll be taking all the equity built up in the property over who knows how many years, along with your inheritance and flushing it down the drain by giving it to a landlord. Better to keep the house as he will be able to gain from capital growth when house prices go back up. If he wants more liquidity, he could always trade down to a smaller property, or consider a life time mortgage or a home reversion scheme to release equity and raise capital which he can use for what he likes or to purchase an annuity. The last two options will affect your inheritance which is something he should be planning for but at least some of his money is tied up in the house. There's lots of info on google on the last two options so i wont go into detail here.

Brainfish

Yes, the endowment was intended for paying off the capital of the (interest only) mortgage, but as I said, he now has more in savings than the amount of capital left to repay. The mortgage interest rate is higher than his savings rate. He had been making occasional payments towards the capital through the years to bring it down and has no early repayment penalty (the joys of early 90's mortgages lol)

The endowment will become his savings when it matures so I'm going to tell him to hang on to that. He was concerned that if he paid the mortgage off that he would have no "float" as he called it for living on when he retires but I reminded him of how much he pays out every month to the mortgage and he was quite happy to know that would be in his pocket instead

Basically the paying off the mortgage is a done deal. It was more so advice on the "should he sell & rent" question.

I spoke to him again about that last night and convinced him that he'd be better buying a smaller property instead.

Thanks

dimbo61

My dad sold his house 3 years ago and I think that was the best option available to him at the time.
He moved from a big old house that cost a fortune to heat and repair
It had a large garden and all his wealth was tied up to a house.
He found a nice flat in sheltered accomadation which he had redecorated and bought new furtinure for.
He has no worries about heating the place ( its included in the rent !) and
has made lots of new friends ( now chairman of the residents assocation ).
Its very closer to the town centre for shopping, papers, banks etc
It aslo gave him the money to travel abroad and enjoy some of his hard earned money.
So check with the local housing assocations if they have any nice 2 bedroom
flats which might suit your mum and dad.
They have worked hard to build up there savings help them enjoy there retirement in comfort GOOD LUCK