Change Mortgage to Interest Only to Invest the Capital Repayment Element

BarleyGB

Thank you all for well thought through reponses


Albermarle "Otherwise it would be interesting to know what you plans are for the future for the money. If you are accumulating money for its own sake", "Regarding the bigger plan, I would maximise pension contributions whilst still working, at least enough to take full advantage of 40% tax relief"

- Key Consideration 1 im already maximising tax relief as much as I can. Further tax efficiency, is the reason for the Interest Only proposal and would enable me to deposit a significant larger sum into Tax Efficient accounts (S&S ISA/SIPP, benefit from pension tax relief). Id not actually use the money to clear the residential mortgage, instead its better to use the equity from 3 BTL properties which I intend to dispose of through my 60's (though the next 5-13 years). The alternative i.e. continuing to pay the residential mortgage capital would that BTL equity would take years to offset into tax efficient accounts.

- Key Consideration 2 retiring early around 58-60 years old, means I need to plug the gaps from S&S ISA, SIPP & DC Pension until my DB pension starts when im 60 and the state pension at 67. I was planning to retire when these combined balances are enough (about £300,000) to enable a £4000 per month pre tax income (BTL net rental income equivalent to the residential mortgage (capital and interest).

Bostonerimus1 "So what will the OP do if there is a 50% fall in the markets that takes a decade to recover?"

Isn't this a bit like, 'what will you do if you get hit by a bus' - like everyone else in the world id have to review my plans. As I said I have the mitigations of a DB pension & BTL equity. Whilst a 50% fall would be very unlikely, missing out on 40% (or marginal rate) pension tax relief would be a certainty. My S&S ISA/SIPP, DC pension are growing around 70% over most 5 year averages, what if the 50% fall is in 2031 after 70% growth (i.e. im just down 15%).

Poseidon 1 "You are not going to find much support for your proposal since my impression is the vast majority of forumites are very conventional where mortgages on their homes are concerned, ie to pay off as soon as possible and preferably no mortgage going into retirement. I do not follow that mantra. Being single, no dependants I abhor vast amounts of dead capital sitting in the home unutilised."

I'm in a similar situation single, no dependants, I think this changes the risk consideration

TadleyBaggie

https://forums.moneysavingexpert.com/discussion/comment/81861935#Comment_81861935

Which is what I had for the whole duration of my mortgage. They got bad press later on but when I took my first mortgage (~£11,500) in 1976, the endowment policy I took out paid out over £30K. I paid off about £20K of the mortgage with it (and spent the rest). I increased the mortgage in 1983 and needed another £25K, new policy taken out and 25 years later paid out again over £30K. Another increase in mortgage in 1992 was covered by a FSAVC policy. Mortgage paid off in 2008 with pension TFLS. It all worked well for me but I think the time for interest only mortgages passed 30 years ago or so.

poseidon1

https://forums.moneysavingexpert.com/discussion/comment/81862323#Comment_81862323

Just would add, retired at 57 now 68.

SIPP untouched ( still growing it), so been living off investment portfolio/isa income, bank interest + commercial property rents.

More recently, state pension means I am solidly a 40% tax payer going forward, and quite happy to be so - none of this angst about paying above 20% which sadly abounds on the savings and pensions forums.

I suspect your profile could be very similar to my own, as you approach your target retirement age. Best of luck if you pursue your proposal.

Bostonerimus1

"Bostonerimus1 "So what will the OP do if there is a 50% fall in the markets that takes a decade to recover?"

Isn't this a bit like, 'what will you do if you get hit by a bus' - like everyone else in the world id have to review my plans. As I said I have the mitigations of a DB pension & BTL equity. Whilst a 50% fall would be very unlikely, missing out on 40% (or marginal rate) pension tax relief would be a certainty. My S&S ISA/SIPP, DC pension are growing around 70% over most 5 year averages, what if the 50% fall is in 2031 after 70% growth (i.e. im just down 15%)."

Do you also have mortgages on those BTL properties? and how much of your income requirements are covered by rent and the DB pension?

The interest only mortgage and investing in the stock market depends on too many assumptions for me that could have very poor outcomes. It might work out ok, but I think you should emphasize stress testing and actually game out what happens in a "2008 scenario" where house prices and stock markets fall. I would be more sanguine about your approach if you were quoting worst case numbers based on historical statistics rather than what's happened in the last 5 years.

dont_use_vistaprint

https://forums.moneysavingexpert.com/discussion/comment/81861593#Comment_81861593

it's very easy to get interest only if you can demonstrate you have funds to pay off the capital, either 6 figure basic with a good company or some capital, Barclays premier will do it so will HSBC

I think it's a smart decision, wish I'd done similar years ago when paying £4K + a Month on mortgages in my 20s and 30s and as such didn't start getting into investing until ages 40-45.

I dont have that kind of debt to leverage anymore but I did choose to keep my small mortgage debt into retirement because I can beat the interest rate I'm paying very easily but it's not worth me switching to interest only now it's so small

dont_use_vistaprint

https://forums.moneysavingexpert.com/discussion/comment/81862009#Comment_81862009

Sorry off topic but srsly interested in equity release but wouldn't generally ask here for the reasons you point out etc. I'm

In a similar position, everyone is sorted with property already, no need to leave anything to anyone, in fact the kids asked I don't work for inheritance they simply don't need like so many do. Spoken to a few companies but didn't like their attitude , felt like they're used to dealing with old, rich dumb types…. can you recommend any reputable products or companies? Basically when I next move I will downsize from 3bed detached large plot to 2 bed appartment and I want to 100% release on the appartment (around 200K)

poseidon1

https://forums.moneysavingexpert.com/discussion/comment/81862548#Comment_81862548

As regards equity release, I personally will likely go back to Aviva who were very helpful in identifying the possibility of using equity release to buy my next property, when I was looking to remortgage present property.

As to how much you can get, much will depend on age but there is no chance of anything near 100%. The lender has to ensure a healthy margin ( in their favour) relative to current property value to allow for the cumulative affect of unpaid interest over your likely lifespan.

Since regulated equity release schemes gurantee the cumulative loan cannot exceed the property value, the companies do not want to find themselves out of pocket in the event of minimal property growth coupled with a long lived borrower.

However, if you are prepared to service the annual interest on a retirement interest only mortgage, I imagine a larger loan ( but still not 100%) should be possible.

Bostonerimus1

"Debt leverage" multiplies risk and the potential gains and of course losses. Its winners speak loudly and its losers crawl away and die under a rock. Most people would benefit from the investment aspects of their personal finances being more deterministic so I can't see the sense in amplifying the consequences of investment risk.

I would also ask what is the purpose of the added risk of this "debt leverage"? Is there a strategic goal like a certain retirement pot amount?

Albermarle

https://forums.moneysavingexpert.com/discussion/comment/81862009#Comment_81862009

You are not going to find much support for your proposal since my impression is the vast majority of forumites are very conventional where mortgages on their homes are concerned, ie to pay off as soon as possible and preferably no mortgage going into retirement.

Although in some MSE forums, like the Mortgages one, paying down the mortgage does seem to be the main priority for most.

However when the perennial question ' should I pay off my mortgage, or add more to my pension etc' comes up on this and the pensions forum, the response is usually a bit more mixed. The most common answer is - do a bit of both. This for many people solves the dilemma between the rational ( more in pension/investments) and the emotional ( get this mortgage debt off my back) .

I am sure in a more professional type forum, the rational view ( like yours) would be more prevalent, but these are consumer forums, offering 'advice' usually to people without a lot of experience in financial matters.

poseidon1

https://forums.moneysavingexpert.com/discussion/comment/81863303#Comment_81863303

Yes, I have come to realise that many posting in these forums ( with certain exceptions) are those with little by way of experience or sophistication in financial matters generally, which can be somewhat frustrating , when it comes to more complex matters that these same individuals may unwisely expose themselves to such as trusts.

Where it comes to the issue of wealth building, and trying to achieve long term financial independence I have come to realise from the friends and family circle around me that this mindset is rare. I have just one old college friend on a similar wavelength to myself, so confine discussions of these kind of issues to him.

As to the OP's present thread, I sensed a kindred spirit whose attitude towards mortgage debt was refreshingly positive in reflecting the fact that given his specific personal circumstance (single, no dependants), it can be a tool to achieve a greater long term objective that may work for him, if not necessarily for others of a more conventional mindset.