Mortgages after Retirement.

Nick_C

westv wrote: »

I'd be worried if I was offered a lifetime tracker that only lasted until I was 72.

Lol. Good point.

When I took my mortgage out I was 58 and Santander didn't lend beyond 75. Some lenders now lend to age 85.

I had assumed they meant the life of the Mortgage, but I will start being cautious as that date approaches in case they send out the hit squad.

pensionpawn

That's why the new Rio (retirement interest only) mortgages are so interesting. They only require repayment when you (both if joint mortgage) croak it. It poses the question do you pay off your £150k mortgage asap or do you let it run (with repayments being eroded by inflation) and leave the £150k in your pension portfolio (to hopefully grow at twice, three times, the mortgage rate?) until you hit LTA, croak it or decide something different. If you plan your pension carefully you should easily have enough remaining for it to repay the mortgage (without tax implications) rather than come out of the value of your house. You may even be able to use a Rio mortgage as low interest and tax efficient method of raising new capital, however that would be a brave move. I reckon that in a few years time the grocery / council tax bill will be more than my monthly mortgage repayments so I'm in no hurry to repay the mortgage in the next few years, unless there is a flaw in the smallprint?

bostonerimus

pensionpawn wrote: »

That's why the new Rio (retirement interest only) mortgages are so interesting. They only require repayment when you (both if joint mortgage) croak it. It poses the question do you pay off your £150k mortgage asap or do you let it run (with repayments being eroded by inflation) and leave the £150k in your pension portfolio (to hopefully grow at twice, three times, the mortgage rate?) until you hit LTA, croak it or decide something different. If you plan your pension carefully you should easily have enough remaining for it to repay the mortgage (without tax implications) rather than come out of the value of your house. You may even be able to use a Rio mortgage as low interest and tax efficient method of raising new capital, however that would be a brave move. I reckon that in a few years time the grocery / council tax bill will be more than my monthly mortgage repayments so I'm in no hurry to repay the mortgage in the next few years, unless there is a flaw in the smallprint?

Yes it all looks great......until there's a big market down turn. I admire optimism, but it can sometimes get you into trouble. Paying off the mortgage while you have wage income makes retirement drawdown planning a lot simpler. The psychology of the individual plays a big part in this decision, and I'm someone that likes being mortgage free. I don't have the pressure of a large retirement income drawdown and I have the security of 100% equity in my properties.

Thrugelmir

pensionpawn wrote: »

1.) keep the £150k in your pension and after 5 years probably see it grow to £200k - £250k

You've also the probability that the value may fall in the 5 year period. Complancy based on recent market performance is a noticable feature these days. Same honey trap drew people into using endowment policies to repay their mortgages. History left a sorry tale of under performance.

bostonerimus

Thrugelmir wrote: »

You've also the probability that the value may fall in the 5 year period. Complancy based on recent market performance is a noticable feature these days. Same honey trap drew people into using endowment policies to repay their mortgages. History left a sorry tale of under performance.

Agreed, the ending value after 5 years of between 200k and 250k implies an annual gain of between 6% and 11%. I would not be comfortable using those numbers in my plan.

pensionpawn

I welcome the (cautious) feedback wrt the using the Rio mortgage method to minimise early capital release from a pension / rapidly build up your mortgage pot however given that most people on this forum are advising that you plan to keep your pension healthy until your late 80's, which for some who want to retire at 55 is a 30 year plus pension, surely that is plenty of time (being longer than the traditional mortgage term) to ride out any down turns in the market? However, surely the LTA discussions in a sister thread would become an issue well before any mortgage repayment concerns?

Out of interest bostonerimus, why are you not happy with a return of 6%-11%

bostonerimus

pensionpawn wrote: »

Out of interest bostonerimus, why are you not happy with a return of 6%-11%

I'd be happy with it, but it's too high for planning purposes, particularly in retirement, The standard deviation of returns should be included and so to make a plan robust a portfolio return below the historical average should be used. That was my conclusion when I thought about it and it's backed up by papers like this

https://www.advisorperspectives.com/articles/2014/07/01/new-research-on-how-to-choose-portfolio-return-assumptions

Audaxer

pensionpawn wrote: »

keep the £150k in your pension and after 5 years probably see it grow to £200k - £250k

That forecast seems very optimistic. As we have been on a long bull run, we could easily see an equity crash within the next 5 years, which could mean little or no growth on the £150k over that period.

Audaxer

Linton wrote: »

4) If there are no relatives with expectations of being left a small fortune why keep a significant % of ones assets locked away to be realised only after one is dead?

In many cases if people have enough pension money to live comfortably on, and have their mortgage paid off, then yes, they might leave a small fortune behind. I suppose the question is, by keeping your mortgage going long into retirement, are you generating more income and spending it, so giving you a higher standard of living than you otherwise would have?

Thrugelmir

pensionpawn wrote: »

Out of interest bostonerimus, why are you not happy with a return of 6%-11%

No one would be unhappy with such a return if you could guarantee that it would be achieved.