Mortgage Free - Or Not?

Hi

My partner and I are considering the early retirement dream and are in the early stages of planning.

During our planning, we keep seeing that becoming mortgage free is the first step on the ladder to early retirement. This seems eminently sensible if you have children who you may want to pass a house on to and to reduce outgoings in later life however we don't have children and both of our families are fairly sensible with money too therefore being mortgage free makes little sense to us. We would prefer to live in our own home though without the worry of rents going up, maintenance issues and the uncertainty of it not being our own home (e.g. landlord decides to sell at relatively short notice).

The only solutions we've thought of are:


Rent with associated costs in later age and discomforts

Stay in own home and have a minimal mortgage

Stay in own home and review equity release schemes

We've discussed this a great deal and are struggling to find a solution - has anyone else come up against this and if so, what did you decide to do?

Thanks in advance for any thoughts!
“If you have enough book space, I don't want to talk to you.” - Terry Pratchett
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Comments

  • What are your circumstances at the moment re. property and how old are you?
  • Thrugelmir
    Thrugelmir Posts: 89,546
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    Choose to live in a house out of practicality , size, location etc. Plan early for ones later years. My now elderly mother lives in a house which is on a street on the top of a ridge. In every direction there's a slope or hill. Even up to the front door. Said she wanted to move some years back. Now won't budge. Which is understandable. I vowed not to make the same mistake.
  • Kynthia
    Kynthia Posts: 5,665
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    How near retirement are you and are you currebtly working with a good income?

    I'd have a chat with a mortgage broker, preferably one with experience of lifetime mortgages and equity release and see what the options are. I'd also see whether your income and current pension mean you can get an interest only mortgage for longer than you're likely to live in the property. The monthly payments should be low and the balance of the mortgage can be settled when you sell or from your estate after your passing. It might not be possible but it's something I'd look at.
    Don't listen to me, I'm no expert!
  • London_Town
    London_Town Posts: 313 Forumite
    OP, it intrigues me that you see being mortgage free as only relevant if you have children or family to leave it all too. I have no children to consider, but still dream of being mortgage free.

    All my retirement planning pivots around clearing my mortgage by 60. I can only afford to live on my occupational pension if I lose the mortgage, which is my biggest out going.

    However, you've made me question this and it's interesting to hear other views. Unless you have a big pension due, don't most people focus on being mortgage free by 65 at the latest?
  • HartJ
    HartJ Posts: 11 Forumite
    Hi

    Thank you for the quick replies!

    Spreadsheetman - we both currently live in my mortgaged property. My partner has a house that he lived in before we met which is now rented out with a buy to let mortgage. I am in my mid forties and my partner in his late forties.

    Thrugelmir - I agree with everything you have said. We would both love to live in a coastal or semi rural setting but the practicalities as we age and simple convenience means that we are looking for a small town with good connections and what estate agents call "amenities". We are already planning our house moves as our current home is great for work but not for our retirement.

    Kynthia - We are both currently working full time with good incomes. We are looking to stay in full time work for approximately 5 - 8 years based on current forecasts. Thank you for your advise re the lifetime mortgage - it's something we considered but the overall payments for the ones we looked at were considerably higher. Might be worth speaking to a broker...
    “If you have enough book space, I don't want to talk to you.” - Terry Pratchett
  • HartJ
    HartJ Posts: 11 Forumite
    London Town - Sorry, just seen your reply! I think, for us, it's more the idea of having such a vast sum of money tied up that we could never use that concerns us. I agree that mortgage free seems like the obvious thing to do when considering financial independence however, there is the cost of clearing the mortgage but then also having that money tied up and not being able to use it. Hope that makes sense?
    “If you have enough book space, I don't want to talk to you.” - Terry Pratchett
  • London_Town
    London_Town Posts: 313 Forumite
    HartJ wrote: »
    London Town - Sorry, just seen your reply! I think, for us, it's more the idea of having such a vast sum of money tied up that we could never use that concerns us. I agree that mortgage free seems like the obvious thing to do when considering financial independence however, there is the cost of clearing the mortgage but then also having that money tied up and not being able to use it. Hope that makes sense?

    Thanks HartJ, that does make sense. You make a very fair point about ending up with alot of money tied up that you can't use. My late father did equity release which worked well for him and it's certainly something I'd consider.
  • HartJ
    HartJ Posts: 11 Forumite
    London Town - it's a real conundrum isn't it? It'd certainly be easier to live on a pension or savings without paying a mortgage or rent but having hundreds of thousands locked away which would be difficult or expensive to access seems wrong too. Plus of course, having to pay a mortgage in later years. We've also discussed having a family member buy 50-75% of our later years property at the current market rate with the knowledge that it would be signed over to them on death but that brings a whole new set of problems! Equity release seems tricky to navigate too.
    “If you have enough book space, I don't want to talk to you.” - Terry Pratchett
  • jamesd
    jamesd Posts: 26,103
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    edited 7 July 2017 at 11:42PM
    Becoming mortgage free by paying more than required makes you poorer regardless of whether you have children or not. Only do it if you have a passion for getting rid of it and are willing to make yourself worse off to get it done. The reason is simple: investments typically grow at a higher rate than the mortgage interest cost. Every Pound of avoidable mortgage paying loses you the compound growth on the difference between investment returns and mortgage interest rate.

    For early retirement planning you should look to either have an interest only mortgage or one with an end date as far into the future as possible, say 85 or older. This has three big advantages because of the lower mortgage capital payments:

    1. More money for investing, typically pension investing.
    2. Lower mandatory payments in the highest financial stress years between retiring and state pension age.
    3. Can make capital payments out of pension money on which you have received pension tax relief after age 55. Tax relief on your mortgage payments this way is a very good thing.

    A study has also found that spending typically declines by about 35% between 65 and 80, so exploiting that knowledge to pay when you have least use for income, later in life, can be a good move. A nice side benefit is more time for compound investment growth.

    If you do have a passion for getting rid of a mortgage, at least try to do it after 55 with money you've received tax relief on.
  • jamesd
    jamesd Posts: 26,103
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    All my retirement planning pivots around clearing my mortgage by 60. I can only afford to live on my occupational pension if I lose the mortgage, which is my biggest out going.

    However, you've made me question this and it's interesting to hear other views. Unless you have a big pension due, don't most people focus on being mortgage free by 65 at the latest?
    Most people do and it's silly: why plan to make payments just before the big increase in income from the state pension which makes it easier? That's a plan for masochists only.

    Your live on occupational pension only without the mortgage is based on a logical fallacy: that all of your extra mortgage capital payment money would vanish if you didn't use it for mortgage paying. It doesn't vanish. Instead you can invest it and even get pension tax relief on it. The income and capital from the invested money can then be used to pay the mortgage and more, courtesy of the tax relief and compounded growth.
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