Mortgage in retirement?

peterg1965

Is it a 'bad' thing to consider taking a mortgage into retirement if you have sufficient guaranteed income to cover it if it's a modest figure compared with income (1-1.5 x pension income) and a plan to eventually repay it?

Everyone's situation is different and what works for someone, may not be appropriate for someone else. However, I am juggling finances between optimising ISA savings, SIPP and Company DC contributions and paying down an IO mortgage, of significant proportions!

I am also about to receive my pension lump sum from my final salary pension - this amounts to about 2/5th's of the outstanding mortgage figure. I want to fully retire in 7-8 years time, ideally with mortgage at zero and a very healthy income from pensions and £100k+ in ISAa savings. It may well be that to achieve this early retirement (I would be 57-58 then) I will still have an £80k+ mortgage with an income of c£60k.

Should I be using my lump sum to pay down the IO mortgage (2.89% fixed until Dec 18 - with 10% overpayments permitted), or should I do something else with it to optimise my financial goals.

PeacefulWaters

If it's affordable, it's not necessarily bad. That said, my own preference would be no debt.

Two thoughts:

1. Will a lender allow it?

2. If you die before a partner, will what's left behind debt wise impact their financial security.

HappyMJ

peterg1965 wrote: »

Is it a 'bad' thing to consider taking a mortgage into retirement if you have sufficient guaranteed income to cover it if it's a modest figure compared with income (1-1.5 x pension income) and a plan to eventually repay it?

Everyone's situation is different and what works for someone, may not be appropriate for someone else. However, I am juggling finances between optimising ISA savings, SIPP and Company DC contributions and paying down an IO mortgage, of significant proportions!

I am also about to receive my pension lump sum from my final salary pension - this amounts to about 2/5th's of the outstanding mortgage figure. I want to fully retire in 7-8 years time, ideally with mortgage at zero and a very healthy income from pensions and £100k+ in ISAa savings. It may well be that to achieve this early retirement (I would be 57-58 then) I will still have an £80k+ mortgage with an income of c£60k.

Should I be using my lump sum to pay down the IO mortgage (2.89% fixed until Dec 18 - with 10% overpayments permitted), or should I do something else with it to optimise my financial goals.

The advice always used to be pay debt as soon as you could but with such low interest rates it's a cheap source of finance which you can use the money you could have otherwise used to pay the mortgage on investing and earning more than 2.89%. As long as that continues I'd never pay the mortgage. I'd keep maximizing your tax free ISA's as much as possible.

peterg1965

It's the perennial dichotomy and balancing act of how much to give up today (in terms of ability to spend in holidays/cars/luxuries etc) to ensure that retirement backed up with no financial worries.

I haven't had the discussion with my mortgage provider regarding how long I can have a mortgage for, I will save that for Decemeber 2018 when I come to remortgage. I would have thought that so long as income is guaranteed (there will be two DB index linked pensions totalling around £46k a year plus drawdown pot and savings) they might be satisfied. There would also be sufficient guaranteed pensions if one of us should die).

I was thinking of using £30k of my lump sum to reduce the mortgage by 10%, then using the interest savings on the mortgage to add to my £1200 (net) per month I am paying into my SIPP.

My wife doesn't have a SIPP and her only pension is an NHS one which she will start to draw in about 5 years, the pension is likely to be around £8000/year so she will be a non tax payer in retirement, at least until her SP kicks in in 2029. Should I consider starting a SIPP for her, seeing as though we will get an instant 20% uplift with tax relief and she will not pay tax on it when it is crystallised, so long as withdrawal keep her below the threshold? To be honest, I have not thought of doing this until now. This could be used as a source of funds to start chipping away at the mortgage balance when she can access the SIPP in 2017.

Goldiegirl

I think it also depends on your personal attitude to having a mortgage.

Some people see the mortgage as a weight around their neck and want it gone as soon as possible. Other people are very comfortable with their mortgage and prefer to use their surplus funds to invest instead.

So the personal comfort zone of you and your wife regarding borrowing money into retirement should also be considered.

peterg1965

Goldiegirl wrote: »

I think it also depends on your personal attitude to having a mortgage.

Some people see the mortgage as a weight around their neck and want it gone as soon as possible. Other people are very comfortable with their mortgage and prefer to use their surplus funds to invest instead.

So the personal comfort zone of you and your wife regarding borrowing money into retirement should also be considered.

Very true. I am certainly not obsessive about paying the mortgage off at all costs, I am more obsessive about protecting the level of desired income and saving for my planned early retirement, but cognisant of the fact that the mortgage needs to be paid off at some point and in a reasonable timeframe. There is always the possibility of downsizing at some stage in the future as well. I am aware that this process rarely releases the level of funds expected but I (we) will not always be needing and wanting to live in a big 5 bed house. Even coming down by £100K in house value may be sufficient just to clear the remnants of a mortgage in 10 years time or so.

atush

I personally feel I will want my mtg paid when we retire, but I expect rates will be higher then than now.

AS far as Peter i concerned, yes I would have a sipp for her immediately. AS it could also mean she could retire a year earlier as well as drawing tax free income after.

peterg1965

I need to go away and do some number crunching on the SIPP for my wife. I could probably afford to put a £10k lump sum in it for her, which would become £12500 after BR Tax Relief, then possibly put in £200/month at the expense of some of the ISA savings I was going to put in her name anyway.

This has really got me thinking now, I have done a quick compound calculation, if she had an initial £12500 in the SIPP and I added £250 a month gross for 7 years and using a 7% interest compounding that would be just short of £50,000 in her SIPP at the point that I retire. Take out £12000 or so Tax free, and then she could effectively drawdown the remaining £36K at say £3000 a year, also tax free, over the 10 years before she starts her State Pension.

Sounds like a no brainer to me, provided I look at some sensible funds to invest in.

kidmugsy

peterg1965 wrote: »

Sounds like a no brainer to me, provided I look at some sensible funds to invest in.

What are her annual earnings? Is she still contributing to her NHS pension?

Thrugelmir

peterg1965 wrote: »

using a 7% interest compounding that would be just short of £50,000 in her SIPP at the point that I retire.

Where do you expect to obtain a consistant 7% rate from ?

MARTYM8`

Clearly it depends on your circumstances and the cost of the mortgage

If you have a generous final salary pension - fine.

If you expect to rely on the state pension - probably not.

Plenty of lenders are happy for those in their 70s or 80s to have mortgages - albeit presumably relatively small sums.