Mortgage reserve

Ninat_2

So we’re in a bit of a mess and hoping someone can advise us. 

We have a mortgage reserve with Barclays at an eye watering 8.4% We owe £35000 on it and are currently paying £300 per month towards it £250 is the interest. Our mortgage term currently stands at 4yrs 10 month. We are not on target for it be paid off. In 58 months we will have paid £17.400 and only £2900 will have been paid off. I don’t have a pension to dip into and my husband has one that really isn’t worth the paper it’s written on. It currently stands at £30000. My questions are
1. what are the tax implications if we were to use the whole pension pot to pay the bulk off? 

2. Husbands current annual salary if £33,500. If he withdraws the £30000, will he be liable for 40% tax over £50k earnings?
3. What happens if we don’t pay the reserve at the end of the mortgage term? 

We were looking at remortgaging to combine the mortgage and the reserve (mortgage stands at £34000) but really don’t want to extend the term and then affordability would be an issue. 

It’s all such a mess and just don’t know which way to turn. 

El_Torro

Assuming your husband is old enough to access his pension then he can take it all out if he wants. Assuming it's uncrystallised (he has taken no tax free money out already) then 25% can be taken out tax free. The other 75% will count as taxable income, so £22,500 of it will be taxable. On top of his salary of £33.5k means he will earn £56,000 this year, so just under £6000 will be taxed at 40%. 

I'll let others comment on what happens if the reserve is not paid. 

MWT

Ninat_2 said:

We were looking at remortgaging to combine the mortgage and the reserve (mortgage stands at £34000) but really don’t want to extend the term and then affordability would be an issue. 

It’s all such a mess and just don’t know which way to turn. 

Time to talk to a broker and see what they can do to help with a remortgage...

Have you already asked Barclays about this?

It would be crazy to continue paying the current interest rate for nearly 5 years if it can be avoided.

As to what happens if you do not pay it, firstly as you get close the bank will be asking you to be more precise about your plans to clear the balance and ultimately if you do not clear it then you'll be stuck on a punitive interest rate and in breach of your mortgage terms which can then lead to legal costs being added to what you owe, and eventually repossession, but that really isn't going to happen quickly and you should obviously plan to avoid the situation completely by remortgaging if possible...

Ninat_2

El_Torro said:

Assuming your husband is old enough to access his pension then he can take it all out if he wants. Assuming it's uncrystallised (he has taken no tax free money out already) then 25% can be taken out tax free. The other 75% will count as taxable income, so £22,500 of it will be taxable. On top of his salary of £33.5k means he will earn £56,000 this year, so just under £6000 will be taxed at 40%. 

I'll let others comment on what happens if the reserve is not paid. 

Thank you. Husband is old enough but unfortunately he has already drawn the tax free 25%. 

Doesn’t seem financially viable to use the remaining amount to pay the reserve. Tax implications would be quite high.