Drawing down pension ti pay off Mortgage

4Futures

I am 58 yrs old  divorced woman with a £130K interest free mortgage repayable in 7yrs. Realistically l have no means of repaying. My original plan had been to sell off 2yrs before before the mortgage was due and relocate anywhere l could with the equity of about £250K. I now realise l don't want to move out of London and try rebuilding my life again in my later years. My private pension value is approx £171K. Should l wipe that out (after tax l may be about £10K short)to become mortgage free? Then live off my full state pension and perhaps rent out a room. Or can anyone come up with any better ideas. 
Thanking you in advance.

4Futures

Meant interest ONLY mortgage 

Linton

Some more information would be useful..

1) By "interest free", I assume you mean "interest only".
2) Are you working now? Do you intend to continue working until you can get your State Pension?  If so are you in a position to save significant money and build up your pension, preferably with an employer's contribution?
3) Could you really happily live in London solely on State Pension for perhaps 30 years? How much do you live on now?
4) Do you have emergency savings?

dunstonh

I am 58 yrs old  divorced woman with a £130K interest free mortgage repayable in 7yrs.

I am sure you mean interest only rather than interest-free.   

My private pension value is approx £171K. Should l wipe that out (after tax l may be about £10K short)to become mortgage free?

Obviously, you need somewhere to live, but you also need an income in retirement to pay for it.

You don't say how much you earn  but if we assume £30k as a ballpark, then you will lose £51,415 in tax by drawing it out in one go.  Leaving you £119,584 net from the pension.

Or can anyone come up with any better ideas. 

Move out of London to a cheaper area to capitalise on the house price difference and have a decent pension fund to give you a better income in retirement to have higher living standards?

MEM62

4Futures said:

My private pension value is approx £171K. Should l wipe that out (after tax l may be about £10K short)to become mortgage free? 

Absolutely - no.  You would loose a considerable amount in Tax, still have a mortgage and have no provision for retirement.  

4Futures said:

Then live off my full state pension and perhaps rent out a room. 

The state pension will only afford you the most modest of lifestyles, particularly if you are on your own.  No luxuries, no holidays, no running a car and watching every penny.  I am sure that you do not want that in later life. 

4Futures said:

Or can anyone come up with any better ideas. 

Can you switch to a repayment mortgage?  You would at least clear some of the principal before retirement.  If you are considering rent-a-room later why not do it now and either invest that money or throw it at your mortgage?

You have a few years to retirement and the more you do now, the better your situation will be later/
 

xylophone

Have you obtained a state pension forecast?

https://www.gov.uk/check-state-pension

 Are you able to change to a standard capital/interest repayment mortgage now  before you retire from paid work?

Sam_666

Doable but very bad idea.
You could draw pension each year, so that total anual income doesnt go over £50K per year. It would take few years to withdraw whole amount from pension, depending on your annual income £. You will be paying 20% tax on your pension draw.
But how do you plan to pay service charges for flat in London? State pension is ridicolusly basic.

Instead, keep paying in work pension and build as much as possible. You will have to move to cheaper area outside London.

Mark_d

4Futures said:

I am 58 yrs old  divorced woman with a £130K interest free mortgage repayable in 7yrs. Realistically l have no means of repaying. My original plan had been to sell off 2yrs before before the mortgage was due and relocate anywhere l could with the equity of about £250K. I now realise l don't want to move out of London and try rebuilding my life again in my later years. My private pension value is approx £171K. Should l wipe that out (after tax l may be about £10K short)to become mortgage free? Then live off my full state pension and perhaps rent out a room. Or can anyone come up with any better ideas. 
Thanking you in advance.

Whilst I can understand you not wanting to move to a different area - I don't think you should ignore the fact that you could move a short train ride out of London and save yourself a considerable amount.The money you'd saving on living costs should more than cover the transport costs for you going in to London whenever you want.

Peter_F

Firstly consider whether you can extend the term of your interest only mortgage to age 70. If you can then try and make additional mortgage payments to pay off some of the mortgage debt or pay more into your pension to increase your retirement provision. This will increase your tax free lump sum and retirement income. The tax free lump sum can be used to pay off some of your mortgage.
It may well be possible depending on your circumstances at the time to switch your mortgage to a Retirement Mortgage or Equity Release when you retire.

Your mortgage amount is not in isolation that much. £130k at 5% is £6,500 pa or £500 per month. A part time job in retirement could easily cover this requirement and allow you to remain in your home maybe not for ever but at least long enough to enjoy the healthy, early part of your retirement.

Obviously all of the above depends on your overall income and a whole lot of other things but in my view,you don't always need to have paid off your mortgage to have a comfortable retirement (but it helps).

Triumph13

Rent the room now.

If you can bring in say £10k pa from that for the next seven years, then by the time your mortgage term ends you should hopefully have enough to pay off the mortgage just from the tax free lump sum from your pension.

LHW99

And if you take out any taxable money, you will be limited to £10k pa total pension contributions (you + employer) going forward.