Advice wanted: Using pension lump sum towards mortgage

SeanAB

Hi, new to this forum, so I hope I'm posting in the right place.

Anyway, I'm facing a serious reduction in my household income and so I'm looking for ways to reduce outgoings. Unsurprisingly, my biggest outgoing is my monthly mortgage payments. Current mortgage balance is £116k, with 10 years to go.

I don't want to extend the repayment period, but might be able to reduce the balance. In 9 years, at age 60, I'm due to receive a pension lump sum of £60k. What I am thinking of doing is asking my lender to offset this against my mortgage balance. This would reduce the balance to £56k and half my monthly payments. In 10 years, there would be an outstanding balance of £60k, which I would be able to pay in full from my pension lump sum.

My question is: Is this a sensible way to reduce my mortgage payments and use my pension lump sum? My thinking is that I need the benefits of this lump sum now, rather than in 10 years.

Thanks all.

Caz3121

do you mean you want to change your mortgage to £56k repayment and £60k interest only? (with the pension being the repayment vehicle for the £60k when the time comes)

tetrarch

I would be tempted to have your cake and eat it.

There is nothing to stop you remortgaging and extending the loan to, say 67 and then using your lump sum when it arrives to pay off the rest of the mortgage.

There is no need for your mortgage company to know your plans.

I myself extended my mortgage two years prior to retiring early, just to give me a cheap credit line. It is fully offset and I make repayments out of the mortgage offset account

Regards

Tet

tetrarch

Just crunched some numbers using the MSE calculator

Using 2.5% as a rate.

The cost of a £116K mortgage over 9 years is £1,201 p.m

The cost of a The cost of a £116K mortgage over 9 years is £1,207 p.m mortgage over 16 years is £734 p.m


Very interestingly (and conveniently for you), the amount outstanding after 9 years is ~£56.5K

Regards

Tet

SeanAB

Caz3121 wrote: »

do you mean you want to change your mortgage to £56k repayment and £60k interest only? (with the pension being the repayment vehicle for the £60k when the time comes)

Yes, I think this would be how it would work. I owe £116k, but rather continue to repay the full amount over the next 10 years, I want to defer repayment on £60k of the debt until 10 years time. Thanks.

SeanAB

tetrarch wrote: »

Just crunched some numbers using the MSE calculator

Using 2.5% as a rate.

The cost of a £116K mortgage over 9 years is £1,201 p.m

The cost of a The cost of a £116K mortgage over 9 years is £1,207 p.m mortgage over 16 years is £734 p.m


Very interestingly (and conveniently for you), the amount outstanding after 9 years is ~£56.5K

Regards

Tet

Many thanks. I see what you mean. I just extend the repayment period to reduce my monthly outgoing, but I'm still able to repay in 10 years time. Interesting. I hadn't thought of this option.

SeanAB

tetrarch wrote: »

I myself extended my mortgage two years prior to retiring early, just to give me a cheap credit line. It is fully offset and I make repayments out of the mortgage offset account

Regards

Tet

Thanks. I may be appearing dim, but what do you mean by fully offset and the mortgage offset account?

tetrarch

Sorry,

This is probably irrelevent detail. I had a mortgage with an offset facility (that allows overpayments etc).

I was just explaining that even though I intended to retire in a short timespan I was able to get an extension to my mortgage for a significantly longer period.

I had to split the mortgage 1/3 repayment and 2/3 Interest Only. That needs I need to repay the loan but am paying 0% interest because the outstanding loan is fully offset. Thus every month money moves from my offset account into my mortgage account, but I am carrying no interest burden.

I am a huge fan of offset accounts as they can significantly reduce the amount you end up paying over the lifetime of your mortgage.

Regards

Tet