Rock and a hard place?

wiltshirebob

I have a £50K mortgage (remaining) currently interest only. I have approx £75K in total savings (£16k in ISAs) and a monthly pension of £500. My mortgage is fixed rate at 5.08 for another year and a half. My mortgage terminates when I am 65 (4+ years from now). My mortgage coats me approx £225 a month with insurance. I am 60 and am not working.

I fear I am looking at no (or little) further job income. I will not inherit any money.

I would like to reduce my monthly payments but I feel I need 'some' capital to live off. Where do I strike the balance?

financialbliss

wiltshirebob wrote: »

I would like to reduce my monthly payments but I feel I need 'some' capital to live off. Where do I strike the balance?

Hi wiltshirebob,

Spotted your post earlier today and expected someone to have replied by now. As it’s not generated a reply yet, thought I’d have a stab at an answer for you…

Let’s consider the facts.

• You have a £50k mortgage being paid interest only. At 5.08% that’s £2,540 interest a year or £211.67 interest per month. If you take that from £225 (your monthly payment), that gives £13.33 for your insurance.
• You’re 60. You’re not in employment and you want to reduce your monthly payments.
• You have £50k of debt, but £75k of savings – you have a net cash asset of £25k.

Two ways to achieve this.

1) Downsize.
This may not be an option as you haven’t specified the value of your house in relation to your debt, but you could downsize to a smaller house to release capital and pay off your mortgage.

2) Clear mortgage with savings.
You may have early repayment charges to consider, but you could use your savings to clear your debt. Otherwise at the end of 4 years you will have paid £2,540 x 4 ie £10,160 and you will still have the £50k mortgage to pay due to it being interest only.


As you’re just paying the interest on the debt and not clearing any capital, you’re going to be hard pressed to reduce your payments further unless you extend the term of your mortgage past the normal retirement age, which in the current climate, I can’t imagine many lenders will want to pursue.

What is the insurance payment? Home insurance / critical illness etc. Can you remove the insurance to drop your monthly payment slightly?

At the end of the day, you owe £50k and this has to be paid back at some point.

Don't think I've really answered your question, but unless I've missed something, I'm not sure you can reduce your monthly payment.

If it was me, I’d probably change to a repayment mortgage and start overpaying to make sure the mortgage was cleared by the time I was 65 (sooner would be better - less interest), but obviously that is going to up your monthly payments.

Hope that helps?
Financial Bliss.