Interest only mortgage

Pete36

Thrugelmir wrote: »

What's plan B if the market dips at the time you need to liquidate the holdings in the pension fund to redeem the mortgage. Easy to become complacent after a decade in which the Central Banks interventions have made the markets benign. The next decade mght not be so investor friendly.

A good point but I'll only need 125k to pay off the mortgage (Only ha ha!) . On my extrapolating spreadsheet, if I assume low growth at 2% of the fund per annum and increase AVCs from 7k per annum to 17k per annum (extra 10k say is the capital for the mortgage foregone and thats before tax relief) then the fund will still hit 700k in 2033 and 25% x £700k = £175k, a lot more than I need. But I take your point that if Trump pushes the button then the fund could plummet but I guess then I'd have a bigger worry?

The only other exposure I potentially have is if interest rates rack up then I'd be paying more interest on a higher capital balance than had I stayed with a repayment which would only offset when the pension fund liquidates in 2033. Also, the government may start reducing the 40k pension contribution allowance?



Pete

Thrugelmir

Pete36 wrote: »

But I take your point that if Trump pushes the button then the fund could plummet but I guess then I'd have a bigger worry?

Markets historically fall on the unknown. Trump won't be in power by then. As can only serve 8 years (2 terms) as President.

Also, the government may start reducing the 40k pension contribution allowance?

No need to reduce the allowance. Inflation will have the same impact over time. The £40k allowance came into full effect from 6th April 2016. Nearly 2 tax years have passed so far. With no intention of increasing the allowance from next tax year.

One assumes that the plan is to let the allowance wane until it reaches what is considered an appropriate level. At which time it will become index linked.

Pete36

Thrugelmir wrote: »

No need to reduce the allowance. Inflation will have the same impact over time. The £40k allowance came into full effect from 6th April 2016. Nearly 2 tax years have passed so far. With no intention of increasing the allowance from next tax year.

One assumes that the plan is to let the allowance wane until it reaches what is considered an appropriate level. At which time it will become index linked.

. Also they are going to let the £1m limit rise with inflation, it's a good number to chase!

Pete36

Ran this past someone who really could pick holes in it as well. His response was 'what if they reduce the 25% tax free' drawdown before she's 57 (Assume drawdown ten years before retirement) which given the track record of sucessive governments is not beyond the impossible! This is the biggest worry!

getmore4less

When you do pick a product go for the longest term you can.

You still have the option to pick away at the debt as income allows.

If you keep an eye on the repayment schedule you can make judgment calls on if you need to structure differently.

There will be a point where it won't be affordable to clear the debt only reduce it, inflation will push that date out.

Pete36

getmore4less wrote: »

When you do pick a product go for the longest term you can.

You still have the option to pick away at the debt as income allows.

If you keep an eye on the repayment schedule you can make judgment calls on if you need to structure differently.

There will be a point where it won't be affordable to clear the debt only reduce it, inflation will push that date out.

I agree. An interest only mortgage for 125k is not a lot in the scheme of things and perfectly manageable even if the drawdown was completely eliminated (which I doubt). I think I'm going to opt for interest only then for a long period . We'll then also then have some flexibility to pay some capital off if we want in the next 17 years whilst having a pot to obliterate it in the future when we have to.

Thanks all,

Pete