Paying off mortgage (or not) on retirement.

swanny65

We are due to remortgage in 6 months time and are looking at then and beyond.

We currently have a small mortgage of £33000. We are 54 and 52 and WILL retire at 60. We are both Civil Servants with decent final salary pensions. We have very little savings, a single personal loan on our car and tend to live from month to month.

When we last remortgaged 5 years ago we extended our 10 year remaining term to a 25 year term, primarily as finances were tight and that allowed us some financial freedom while getting our two children through the bulk of their schooling. The intention was to use my pension lump sum to clear the loan at 60.

18 months ago I decided my final salary pension wouldn't be sufficient to retire at 60 so I took the plunge and applied for a London based roles on promotion. Eventually successful my salary increased but not my net income due the the cost of my season ticket. My pension, after the Alpha deduction for leaving at 60, will increase by 45% so i can retire at 60. It is our intention my wife will do something similar in 4 or 5 years time when the children are both at university. If successful her pension will increase by a similar percentage with the increase in classic pension far exceeding the deduction for taking her Alpha element early.

Our only extravagance is our 13 year old motorhome. We want to exchange the motorhome on retirement for a new/nearly new model. We would need £30000 to £40000 for this. We intend to tour Europe for a long as we are fit and able.

Looking at current mortgage deals on the market we could remortgage now on an interest only basis for £60 a month (less than a third of our Council Tax), with the repayment loan being £160 a month. We are thinking is it worth repaying the capital now and handing over a lump sum in 6 years time with rates this low.

Is it common to pay interest only forever and a day after retirement, and prior to retirement in our case, on small mortgages ?

thriftylass

I take it you want to pay minimum now to use the leftover salary to built up a saving spot that earns more interest than you would save by paying the mortgage off early? Or pay of the car loan quickly to save they interest on that which I guess is much higher than the mortgage interest?

Would be another option to overpay the mortgage, depending on your terms, and be done with it in two or three years?

dimbo61

Your first problem would be getting an Interest only mortgage.
Rates have never been this low.
Have you checked the deals available to existing customers with your current lender.
Pay down/off your debts now and use your lump sum to live on from 60 until you get your state pension and buy that motorhome.

xyz123

It is your decision of course but What would happen if God forbid one or both of you have any health issues? Personally I will prefer to secure a permanent roof over my head and then look at motor homes and other expenditures...

Nebulous2

Are you wedded to your current home?

I'm slightly older than you, probably with a lower family income, and am planning a similar post-retirement lifestyle. We stay where house prices are quite a bit higher than the area we came from and despite never thinking we would return we began to see compelling reasons to do so.

We were mortgage free and remortgaged to buy a second home. Plan is to pay as much of it as possible in next 2-3 years, sell our more expensive home, and buy a motorhome, touring approximately Oct to March.

I've swapped all my pension to one which doesn't give an automatic lump sum, which will increase post-retirement income. Effectively I'm looking at reducing outgoings after retirement, especially until state pension age. The last thing I'd want would be to have another payment.

One reason for that is control. I can remember much higher interest rates. I don't want to be at the mercy of those with limited opportunities to raise my income. An extra £100 doesn't seem much to me. I'd be trying to overpay on that to reduce the lump sum required at 60.

swanny65

Hi All

Thanks very much for your replies much appreciated. A few additional points based on the replies.

Overpaying - not really an option as the children's demand on our available income is higher now than ever before. When they were first born and i had a second (S/E) job i was overpaying by £500 pcm to get us in the position we are now in.

Car Loan - interest pretty low at around 4.5% but needs to be paid over a further 30 months which we can live with.

Think of moving my current account to First Direct/HSBC as they have the best interest only deal and may be better placed being an account holder when i need to remortgage.

Pretty secure in the event of health issues. Both would get 6 months full then 6 months half pay. I would then be within early retirement on health grounds date and my wife the same in 18 months. Have £200K life assurance until 2025 and would get over £100K from our employers.

I would like to sell up at 60 and buy a static/mobile home, move around the UK as we like. We have £400K equity - give £75K each to the children, to buy a home and rent out spare room(s) while at University/work. That would still leave us £100K after clearing the mortgage. However my wife does not share my vision !!!

My thinking is £60 a month interest only until we sell up or the children are settled looks very attractive. Why give up £30K if it facilitates a flexible retirement now - it is a lot of £60 a month payments.