Retirement and paying off mortgage

Legacy_user

I'm thinking about taking early retirement in August at the age of 58 years and 5 months. I will get a lump sum of £61,000 and a pension of £18,616 pa, equating roughly to a monthly net income of £1400.

My mortgage balance at the end August 2015 will be approx. £65,747. I will be at the end of year 1 of a two year HSBC fix. The mortgage term was 8 years, leaving 7 to run.

If I make a payment to my mortgage of the full £61,00 I will incur a penalty of around £750, but I could make the monthly repayments from the lump sum to take me up to the end of the fix to avoid the penalty then make a lump sum payment of what's left of my pension lump sum - but I'm confused as to whether I'd be better or worse off. My monthly payments are £818.30 and the interest rate of the fix is 2.49%.

Basically I need to be rid of the majority of the mortgage in order to live reasonably comfortably.

Any advice would be much appreciated.

edinburgher

I'm not sure what the question is.

Yes, you're right to try and avoid any penalties and if you need to pay off the mortgage, that would be the most sensible way to do it.

Is there any chance of remortgaging to a better rate seeing as you have a guaranteed income? You would be able to get a better return than 2.49% from some cash, P2P lending or various ISA investments.

System

Thanks for your comments edinburgher. I suppose the question really is: am I going to incur interest charges greater than the £700 penalty by continuing to make the monthly payments for another year rather than paying off £61,000 immediately?

I've never had access to this sort of money before - so not sure what I could do with it.

edinburgher

Ah right. Yes, you may pay a bit more to pay it off over a year, but it would be a close thing. As a basic calculation (2.49% * £61,000), it would appear that you will pay something like £1,400-1,500 over the course of the year, but it won't be quite as much as that if you're paying off c. £5,000/mth.

Personally? I'd just pay it off and have done with it.

System

Lol, think you're right. I take it that the £5K remaining mortgage balance will mean I will be paying around £75 a month over the remaining 7 tear term. I assume the back will reduce the monthly payment accordingly ... Will overpay monthly as much as I can afford obviously.