Mortgage going into retirement age?

Hopejack

My DH and I are applying for a mortgage with HSBC. We want to borrow over 25 years, however, my DH is 37 and has to retire at 55 leaving a short period where the mortgage will still be payable once he is retired. I am currently not working as I'm at home with our young children, I do expect to go back to work once they are older but obviously that does not cover us right now for the application.

He gets a very good lump sum (more than enough to pay off the mortgage that will be owed when he is 55), and a good pension as well. He can prove all this to the underwriters with his pension papers.

I'm worrying that the underwriters will say no to a 25 year mortgage and say we have to take it over 18 years, effectively his time left at work.

Anyone know if this might happen as the payments would increase quite a lot over 18 years and it may make the amount we are wanting to borrow unaffordable for us (we are borrowing 38% ltv on the property we want to purchase so not a huge risk for them in that way).

This is not something I'd honestly even thought about until we underwent the procedure for an application in principle today. We are getting old :eek:.

magpiecottage

I could probably guess his occupation within about four attempts because there are very few that it is now legal to force retirement at that age.

Generally, those that do have very good retirement benefits so it should not be an issue. If this lender does not want to play ball, go to a broker.

kaych

What about having an Interest Only Mortgage? if you know that you will have enough to pay the lump sum at the end of the Mortgage term, also the amount you will need to pay monthly will be reduced.

opinions4u

He gets a very good lump sum (more than enough to pay off the mortgage that will be owed when he is 55), and a good pension as well. He can prove all this to the underwriters with his pension papers.

What happens if his employer closes the pension scheme to existing members?

What happens if his employer limits the pensionable salary within the pension scheme by allowing inflation to erode the long term value?

£100k over 25 years at 5% is £591.

£100k over 18 years at 5% is £712.

If the finances could cope, why not be pro-active and get on to a shorter term mortgage now. It's easier to do while you're still young.

He gets a very good lump sum (more than enough to pay off the mortgage that will be owed when he is 55), and a good pension as well. He can prove all this to the underwriters with his pension papers.

Can he prove his employer will honour it?

getmore4less

Retirement is optional now till 65, so when this job finishes he can carry on working, many people change jobs in their 50's.

Do they even ask when you plan to retire last time we got a mortgage they just asumed 65.

You also need to start planning for this lump sum,
One option having an interest only mortgage to pay off means you can start filling the ISAs with the money you would have been paying.

Hopejack

Thanks very much for the replies. Yes of course he has the option to find employment elsewhere at 55 and he may well do that - it wouldn't be much as it's not that easy to find a job at that age (sorry don't mean to sound ageist but it's a fair assumption I think).

As for the pension/lump sum guarantee, it is set in stone that it will be honoured. They have already changed the scheme to new employees. Employees with the service he has are guaranteed the lump sum.

Never thought about the interest only mortgage - it's something to look at thanks!

dimbo61

Please think about your retirement plans as well as the mortgage
Take the mortgage over 18 years ( or take it over 25 and overpay!)
Your OH will have to wait until he is 68 to get the state pension and using part of his lump sum to clear the mortgage is poor planning.
I took out a large mortgage at 44 and plan on being Mortgage free by 50/51 by overpaying and reducing the term.
Dont spend your retirement in poverty !!!!

opinions4u

Hopejack wrote: »

As for the pension/lump sum guarantee, it is set in stone that it will be honoured. They have already changed the scheme to new employees. Employees with the service he has are guaranteed the lump sum.

I really do think that you would be unwise to believe any promise made on pensions by any employer. Public sector or private.

Too many have been broken in recent years.

cj25_2

opinions4u wrote: »

I really do think that you would be unwise to believe any promise made on pensions by any employer. Public sector or private.

Too many have been broken in recent years.

You have to distinguish between a what is just a promise and what is a full guarantee. For pensions schemes, anything that has already been earnt for past service is typically set in stone, protected by law and also by the pension protection fund (up to a certain limit) if the employer went bust.

Anything that has not actually been earnt yet, i.e. pension due to service over the next 18 yrs to retirement, the employer has freedom to change the scheme in order to alter. It's worth noting that this includes the final salary used to calculate pensions in the case that the employer completely closes the scheme, and closes it to accrual.

Therefore in the worst case scenario, assuming a typical pension scheme, your pension could be reduced from

salary at 55 * service to 55/accrual rate
to
salary now* past service/accrual rate.

The benefits you have "earnt" up to this point are protected, but the promise of the future benefits if you stay until 55 are not yet. This would normally have a similar affect on your lump sum as it is usually a multiple of the pension.

Hopejack

Thanks again for the replies. I understand about the guarantee and we are not totally banking on that anyway. Like I said, he could get another job, albeit a smaller paid job (or there may be the possibility of staying on for a few years but on a year by year contract) and I will also be looking to go back to work in the next 2-3 years once my smallest child is a little older. I know I won't be retiring early! but for the purposes of the mortgage app now we have to show we can cover it should he retire at 55 and I not be working - it's obviously not enough to say I'm going to get a job as I'm not currently working!

In addition, we fully intend to overpay on the mortgage but won't be doing this for at least the first 3 years as the property needs a lot of work so we need to pay for that. Like I said, once I'm (hopefully) back at work we will be looking to overpay anyway. But for this scenario, we have to show we have some way of paying back which they can look at now....

andrewmp

It shouldn't be a problem, they won't care when he is due to retire, they don't even ask. They never asked me anyway.