Mortgage Free - Or Not?

jamesd

HartJ wrote: »

we both currently live in my mortgaged property. My partner has a house that he lived in before we met which is now rented out with a buy to let mortgage.

Do you know that it's usually cheaper to use a residential mortgage than a BTL mortgage? You might be able to save a lot of money by increasing the mortgage secured on your property to repay the BTL mortgage secured on the rental property. The deductibility of mortgage interest isn't affected by a different property being the security for the borrowing.

beaker141

jamesd wrote: »

Most people do and it's silly: why plan to make payments just before the big increase in income from the state pension which makes it easier? That's a plan for masochists only.

Your live on occupational pension only without the mortgage is based on a logical fallacy: that all of your extra mortgage capital payment money would vanish if you didn't use it for mortgage paying. It doesn't vanish. Instead you can invest it and even get pension tax relief on it. The income and capital from the invested money can then be used to pay the mortgage and more, courtesy of the tax relief and compounded growth.

I assume this is a fairly new line of thinking though made possible by the pension freedoms introduced. If it was back to the old scheme of being forced to buy an annuity it would be a bit scarier - knowing that money still had to pay the mortgage.

jamesd

The tax free lump sum has been available far longer than that and the requirement to buy an annuity was first removed when alternatively secured pensions were introduced in 2006. The big thing that the recent pensions did was remove the limit on how fast you can take out taxable money. The previous system effectively forced you to use a lot of non-pension investing for early retirement so you could draw the money at a fast enough rate.

But those freedoms finally did the job of making no annuity required very well known.

HartJ

jamesd - they are some very interesting ideas and I think I'd have to sit down with my partner and discuss them.

I've always had it drilled into me that paying off the mortgage before retirement was THE thing to do due to the compound interest meaning that you paid far more than the original purchase price plus there is the security of not having to worry about the house payments when on a lower income i.e. pension however my mortgage interest rate is far lower than the return we are seeing on our investments. My current fixed rate doesn't end for just over 3 years so a lot depends on things like interest rates at the time, where we are in terms of our jobs and retirement planning. We envisage staying in the house until then however my partner's employer has recently moved their head office so if he stays with them, then the commute might be too much for him and another move might be on the cards before the move to an area where we wish to retire. Plus of course, global economic uncertainty, Brexit......

Regarding my partner's house - he currently has an interest free mortgage on this but the idea of a residential mortgage with the deductability of mortgage interest is something we'll look into. Thanks for that!

atush

We are already planning our house moves as our current home is great for work but not for our retirement.

This is where you can downsize (either in size or price) so that you dont still have a mtg. You arent staying in your current house for retirement, so really your plans shouldnt be made as if you were?


So if your rate is low now, I would concentrate on Pensions and S&S isas instead.

MallyGirl

this is our plan - to move West once we don't need to be in the Thames Valley for work. At current prices I reckon we could liberate £300k at least, with a nice switch to more land and less bedrooms as well.
In some ways I wish I had cottoned on to the AVCs and S&S ISAs earlier but now I only have around £30k left on the mortgage which will make things simple as that will be gone well before early retirement. By 60 I plan to have £450k in S&S ISAs (plus growth) and £1m in combined (DH & mine) pension pots. That will meet my 'number'.

HartJ

Our plan is to stay in the current home until the mortgage fix finishes (the mortgage is not portable) and then upsize closer to work combining our income multiples for a few years. We intend to upsize in terms of both price and size. Our current home was originally just mine and was the perfect size for just me and whileas I live in a very minimalist fashion, my partner doesn't! It seems to fair to reduce the commute for a while and also to entertain the idea of a larger home.

After this, we then intend to move north to take advantage of cheaper house prices and cost of living but also because we love the north and can't wait to move! In terms of the final mortgage, we are now unsure how much to retain - enough that's affordable? Enough to cover potential care home fees are covered? I suppose the best time to apply is shortly before early retirement as a larger mortgage might not be covered beyond a certain age or having a much lower income. It's all a balancing act

HartJ

The other thought we have is whether to keep the current property being let out and maybe the one we currently live in as buy to lets to gain a passive income once we retire but we will need to look into the tax issues on that nearer the time.

We both have investments, stocks and shares and AVCs, although my experiment with Vanguard hasn't proved too good so far!