Mortgages after Retirement.

Linton

Audaxer wrote: »

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?

You have the choice of how you use the extra money arising from not retaining the equity in ones house. It can give you the freedom of being able to do anything you may want, take long holidays, eat out more frequently etc with little restriction due to cost. However at some stage ones wants are limited by time, infirmity, capacity for consumption or general lack of interest.



On the other hand (or as well!) one could move to a better house in a better location with the extra costs effectively paid for by ones existing equity.

bostonerimus

I think of my home equity as a diversifier in my portfolio. Even with the 2008 down turn it's been a good place to put some capital

tigerspill

Linton wrote: »

4 possible reasons if you have enough money to pay off the mortgage if you want....

1) Investment returns are higher than mortgage interest rates
2) You have a hidden gain from inflation, some of your income rises with inflation but the debt doesnt.
3) Some people may feel more secure having paid off the house, others may feel more secure knowing their assets are easily accessible.
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?

Debt can be a disaster for those that need it but an extremely valuable facility for those who dont.

I used to be strongly in the cast of pat the mortgage off as fast as possible no matter what.

In the past year, I have taken on a significant mortgage (bought a refurb and still have my own to sell). So when I sell I will have the cash and my thought was pay off the mortgage.

I am now moving to the "keep it" camp for some of the reasons you mention. While rates stay low, I will likely be keeping it open knowing I can pay it off at any time. Even if interest rates rise - I can use an offset mortgage and negate interest and still have access to the cash.

bostonerimus

This discussion remind me of the old proverb.....a bird in the hand etc

Thrugelmir

bostonerimus wrote: »

This discussion remind me of the old proverb.....a bird in the hand etc

Alternatively "Cash is king".

MoneyGeoff

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?

I've never been in a rush to pay off the mortgage, preferring to invest instead. The house will probably go to the cat's home when we die anyway so no reason to pay it off early.

By the time I draw my pension at 55 there will be £150K outstanding on the mortgage. I could pay it off with the TFLS but RIO mortgages will have been around for a while by then so I will likely do that.

Bimbly

My mortgage is relatively large, but I decided living somewhere nice where I feel at home was worth it (I had spent years living in places where I was not entirely comfortable and it was depressing).

I took out a repayment mortgage to age 75 with a plan to overpay and clear the debt by 60. But I wanted to be able to retire at 60 too and putting it all into the mortgage meant I wouldn't have enough money to do that. I do have a sort of a side business which might fill in the gap, but that was touch and go so I figured I would enjoy the house for now and then move to a cheaper part of the country when I give up work.

But it frustrated me that I was missing out on all the tax relief from possible pension contributions by maxing out mortgage payments. My job offers salary sacrifice, so effectively 32% tax relief. So I did the sums, and I can put the extra payments into my pension instead and generate enough to pay off the mortgage and retire. More or less. I still may want to move once not tied to the job, but this is giving me options.

I'm still paying off the debt with a repayment mortgage so that makes me feel ok. An interest only mortgage would make me feel nervous.

Audaxer

Linton wrote: »

On the other hand (or as well!) one could move to a better house in a better location with the extra costs effectively paid for by ones existing equity.

I'm obviously a lot more risk averse than you. As we are thinking of moving to a better house in a village in a few years, I may have to use up a fair bit of cash to get what we want. I hadn't even considered a further mortgage as I paid mine off many years ago.

westv

I had a quick look at RIO mortgages. The market looks very limited.
I see they also refuse mortgages on properties at high risk of flooding although it doesn't clarify whether that's river/sea or river/sea/surface water.

MoneyGeoff

westv wrote: »

I had a quick look at RIO mortgages. The market looks very limited.

They are new because the FCA recently relaxed the rules. The market will open up over time.