repayment or interest only at 58

sunnygal

We are a couple in our fifties. We owe £19000 on our present home but wish to move. We only need to borrow 40/50k as we have enough equity to put down a good deposit on our new home. We want to pay off the mortgage when my husband retires in about 8 years time. He has a 6 figure final salary pension fund.

What we want to know is should we get a repayment mortgage, which as we want to pay off in a few years will be very high repayments each month which would make things tight for us. But we would know that the mortgage would be paid off.
Or,
Should we get an interest only mortgage, save as much as we can in a high interest savings account each month then use this along with my husbands pension fund to pay off the mortgage. This would make our monthly payments very low and easier for us to still have a life!

We can't seem to get a definitive answer from banks etc as they have okay'd us to get a mortgage but all say different things about how best to repay it.
So I thought I would see what the experts on this site think.

Cannon_Fodder

How comfortable do you wish to be through retirement?

Taking £50k out of a six figure sum to clear your mortgage, will impact pension income for the rest of your lives.

Not sure you'll get an IO product without jumping through hoops to prove a repayment vehicle is in place, but if you find some, choose one that allows overpaying, then do an amount somewhere short of full repayment making things "tight", but enough to make the final amount in 8 years negligable?

getmore4less

You need to consider this as part of retirement planning.

What are the options from the pension fund re: the tax free lump sum.
Some schemes the comutation rates Are not good so it can be better to take the pension and use this to continue the mortgage a bit longer.

Using a lump sum to pay off a mortgage can be a good option since it is difficult to invest this in a tax efficient way quickly. By filling up ISAs for a fw years leave you in a similar poiyion but with an amount in a tax free shelter. This can ibe handy when you get older and income is around the age allowance.

CLAPTON

how much will his lump sum be approx?

(a six figure pension fund can mean 100,000 or 999,999 ..quite a range)

VIGILANT22

Cannon_Fodder wrote: »

How comfortable do you wish to be through retirement?

Taking £50k out of a six figure sum to clear your mortgage, will impact pension income for the rest of your lives.

Not sure you'll get an IO product without jumping through hoops to prove a repayment vehicle is in place, but if you find some, choose one that allows overpaying, then do an amount somewhere short of full repayment making things "tight", but enough to make the final amount in 8 years negligable?

Where there is a pension intended to be a repayment vehicle from the tax free lump sum .. the lender asks for the most recent pension statement.........

sunnygal

getmore4less wrote: »

You need to consider this as part of retirement planning.

What are the options from the pension fund re: the tax free lump sum.
Some schemes the comutation rates Are not good so it can be better to take the pension and use this to continue the mortgage a bit longer.

Using a lump sum to pay off a mortgage can be a good option since it is difficult to invest this in a tax efficient way quickly. By filling up ISAs for a fw years leave you in a similar poiyion but with an amount in a tax free shelter. This can ibe handy when you get older and income is around the age allowance.

The 6 figure lump sum will be in addition to an annual pension which we could manage on, plus the government pension. The lump sum will be over £100,000 but less than £150,000. It's hard to say at the moment exactly what it would be.
My husband has regular updates on his fund.
I think we might try for a repayment with the option to invest lump sums at any time in order to help pay it off. Does this sound a feasible option?

dimbo61

As others have said really now is the time to see an IFA and look at what you want in retirement !!
Using 1/3 to 1/2 of your OH lump sum at retirement to clear the mortgage may leave little to enjoy your retirement on.
Going Interest Only and overpaying by whatever you can will help to reduce the debt over the next 8 years ( therefore smaller balance to clear!)
Interest rates have never been so low so please look at 5 year fixes ( good LTV) as you are putting down a big deposit.
As others have mentioned you should be filling your ISA allowances as long term savings ( either Cash or Stocks/shares)£5100 EACH cash and £10200 S/S
GOOD LUCK