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Drawing down pension ti pay off Mortgage

4Futures
Posts: 2 Newbie


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.
Thanking you in advance.
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Comments
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Meant interest ONLY mortgage0
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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?1 -
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.Obviously, you need somewhere to live, but you also need an income in retirement to pay for it.
My private pension value is approx £171K. Should l wipe that out (after tax l may be about £10K short)to become mortgage free?
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.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?
Or can anyone come up with any better ideas.
I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.2 -
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?
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:Then live off my full state pension and perhaps rent out a room.
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?4Futures said:Or can anyone come up with any better ideas.
You have a few years to retirement and the more you do now, the better your situation will be later/
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Have you obtained a state pension forecast?
https://www.gov.uk/check-state-pensionAre you able to change to a standard capital/interest repayment mortgage now before you retire from paid work?
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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.0 -
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.1 -
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).0 -
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.0 -
And if you take out any taxable money, you will be limited to £10k pa total pension contributions (you + employer) going forward.
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