Mortgages after Retirement.

westv

It appears that interest rates may stay low for some time.

I expect most people's mortgages will be paid off prior to retirement but do many here plan to keep running one on the expectation/hope that investment returns will exceed the mortgage interest over the long term?

It was something I had considered but we are probably going to move after I retire and I understand mortgages and drawdown don't mix ie lenders don't generally take account of drawdown income.

Linton

We are running an I/O mortgage. the intention is that it will eventually be moved to equity release but if interest rates reach very high levels could be repaid.


With explanations from a broker the mortgage company underwriters accepted drawdown income as part of the justification. They did not appear to question whether the drawdown was sustainable and I suspect that they were not used to considering it.

OldMusicGuy

No, but we are planning on two downsizing moves through our retirement to release and use equity from our property.

JoeEngland

westv wrote: »

It appears that interest rates may stay low for some time.

I expect most people's mortgages will be paid off prior to retirement but do many here plan to keep running one on the expectation/hope that investment returns will exceed the mortgage interest over the long term?

It was something I had considered but we are probably going to move after I retire and I understand mortgages and drawdown don't mix ie lenders don't generally take account of drawdown income.

If you can, the earlier you pay off your mortgage the better, you'll then have more money to invest and more security with no one having a financial call on the house. I overpaid our mortgage for several years, then we were fortunate to be able to clear what was left from an inheritance.

kidmugsy

We kept our flexible interest-only mortgage going as long as we could: it was a wonderful source of cheap borrowing. We paid it down when we felt flush, we borrowed money back when we needed some.

Alexland

I usually suggest that people try and get their mortgage repaid by their desired retirement date but ours currently runs a bit longer as I prefer low minimum repayments. We are fortunate that even in our 30s the 25% TFLS on our current combined DC pot values would already clear the current mortgage balance so the risk is negligible.

Alex

AnotherJoe

westv wrote: »

It appears that interest rates may stay low for some time.

I expect most people's mortgages will be paid off prior to retirement but do many here plan to keep running one on the expectation/hope that investment returns will exceed the mortgage interest over the long term?

It was something I had considered but we are probably going to move after I retire and I understand mortgages and drawdown don't mix ie lenders don't generally take account of drawdown income.

I wouldnt do that myself because the distinction is that before you retire you are earning money, and you can always work OMY to balance out a crash.
After retirement, when your income is dependent upon income from investments and drawdown, there's too much danger of a double whammy of investments down and you having to fund both spend and mortgage from the same diminishing investments.

badmemory

I don't think that the psychological benefit of having paid off your mortgage should be ignored. But I suspect it may be people with a lower income or an employment that is not too secure that may receive a bigger benefit from this.

pensionpawn

I am seriously considering one of the new Rio mortgages which are available from 55 until you croak it. This is for a number of reasons:
1. Part of my financial planning, from as far back as the mid '90s, was to shift my mortgage repayment vehicle from endowment to pension, and this would be in addition to my existing pension contributions. This meant moving away from the traditional (as was, however I think no longer) 25 year mortgage to a slightly longer one which is repaid from 55 using part, if not all, of your 25% TFLS. Although paying your mortgage for longer (not an issue for us as over the years your mortgage repayments reduce in real terms), it did mean that the government were contributing 20% towards your mortgage capital repayment.
2. Interest rates remain low however pension growth (at least for me) is still bubbling along nicely in two digits pa so rather than repay the mortgage with the 25% lets keep it in the pension a little longer. After all the monthly mortgage repayment is now almost at low as the monthly food bill / council tax bill. Yes I know that interest rates can go up and pension growth can fall, however we all review our financial situations very regularly, don't we?
3. If you get a good 5 - 10 year fix on the Rio mortgage loan the repayments are going to be eroded further through inflation over the next 5 - 10 years.
4. Make over payments from your draw down if appropriate to your circumstances.
5. Take the 25% out when you decide to retire and repay the Rio mortgage later down the road if you prefer to be mortgage free. Also plan your pension so that there will always be enough remaining to repay the mortgage (tax free) when you croak it.

I don't think mortgage free is the default anymore.

JoeEngland

badmemory wrote: »

I don't think that the psychological benefit of having paid off your mortgage should be ignored. But I suspect it may be people with a lower income or an employment that is not too secure that may receive a bigger benefit from this.

Indeed, paying the mortgage off does have a big psychological effect. Not only is it typically the biggest monthly outgoing, but the thought that the house is truly yours is very satisfying and gives a valuable sense of security.

dave23

Council tax is now bigger than our mortgage payment