You are here: Home - Mortgages - Remortgage - News -

One in six homeowners will still be paying off mortgage in retirement

Written by:
One in six people think they’ll be over 65 by the time they pay off their mortgage, a new study reveals.

Among those aged 55 with a mortgage, 26 per cent expect to still be paying it off over the age of 70 and 12 per cent don’t think they’ll ever repay it.

Younger people are more optimistic with 80 per cent of 16-34-year olds expecting to pay it off by 65, according to the survey of 2,000 people by Hargreaves Lansdown.

However, this optimism may be misplaced as data from the Financial Conduct Authority (FCA) shows 40 per cent of first-time buyers in 2017 will still be repaying at 65.

Sarah Cole, personal finance analyst at Hargreaves Lansdown, said: “65 is the new 50, but not in a good way. Because while previous generations might be footloose and mortgage free by their 50s, increasingly we’re saddled with debts as we head into retirement.”

Coles said the shift is down to higher property prices and more people in higher education meaning homeowners borrow more and buy later.

She also blames people dipping into equity to support children, dealing with “the horror” of an interest-only shortfall, or starting again after a divorce.

What can you do?

Coles shares here eight top tips…

  1. Repay more now

If you can remortgage to a lower interest rate, more of your monthly payments go towards actually repaying the loan. It means you can save a fortune in interest, and shave years off your mortgage term too.

  1. Work out if you can afford repayments in retirement

If you’re expecting a generous pension, and your mortgage is likely to be fairly low (and low-cost), then this may not be an issue at all. If you’re on a lower fixed income than you’re used to, and your mortgage repayments are still sizeable, then it’s another story.

  1. Continue working until you have paid it off

If you are well enough, have no caring responsibilities, and work is available, working longer until your mortgage is repaid is going to be a sensible option for many people.

  1. Pay it off from savings and investments

This may offer peace of mind, but it’s not always a good idea. During your retirement you’ll be spending down the savings and investments you’ve built up over a lifetime, so you may not want to wipe them out on day one. This is particularly the case if you then need a lump sum later for something like property repairs, and end up borrowing at a much higher rate.

Even if you have the available cash, it may still not make sense if the interest rate on your mortgage is lower than the interest this lump sum could earn elsewhere.

  1. Use your pension tax free lump sum to pay it off

This is an option, but it needs to be considered carefully. In a defined contribution pension, you may need the entire pot to generate an income you can live off, so dipping into it could leave you struggling throughout retirement. Alternatively, for a defined benefit pension, the best value is often maximise the income and take no cash. It’s a complicated issue to consider carefully or take advice on.

  1. Downsize as soon as you retire in order to pay it off

This can solve the problem, but do the maths if you’re planning this approach, because you need to factor in the costs of moving – including everything from estate agents and legal fees to stamp duty and moving costs. You may also find retirement housing is in high demand in the area you want to retire in, so you may not free up as much cash as you had expected. There may also be timing issues if you can’t sell immediately.

  1. Switch to a retirement interest only mortgage

These are interest only mortgages, where you make lower monthly payments to cover the interest, and then after your death (or you move house or into a care home) the property will be sold to repay the outstanding debt. This is a relatively new product, and is an interesting option, but you need to be sure you can afford the repayments, and talk to your family about your decision.

  1. Release equity

You can free up a lump sum to repay your mortgage, but make sure you understand the implications, especially if you are doing this relatively early in retirement. The interest on the loan will roll up and need to repaid after you die. Over a ten year period, the amount payable on the loan can double, taking out a much bigger chunk of the equity. If you choose this approach, it’s always worth talking to your family, so everyone knows where they stand.

There are 0 Comment(s)

If you wish to comment without signing in, click your cursor in the top box and tick the 'Sign in as a guest' box at the bottom.

Seven ways to get help with energy bills this winter

We knew today’s announcement was going to be painful, but it’s still a shock to the system. When this kick...

Flight cancelled or delayed? Your rights explained

With no sign of the problems in UK aviation easing over the peak summer period, many will worry whether holida...

Rail strikes: Your travel and refund rights

Thousands of railway workers will strike across three days this week, grinding much of the transport system to...

What will happen if rates change

How your finances will be impacted by a rise in interest rates.

Regular Savings Calculator

Small regular contributions can build up nicely over time.

Online Savings Calculator

Work out how your online savings can build over time.

DIY investors: 10 common mistakes to avoid

For those without the help and experience of an adviser, here are 10 common DIY investor mistakes to avoid.

Mortgage down-valuations: Tips to avoid pulling out of a house sale

Down-valuations are on the rise. So, what does it mean for home buyers, and what can you do?

Five tips for surviving a bear market mauling

The S&P 500 has slipped into bear market territory and for UK investors, the FTSE 250 is also on the edge. Her...

Money Tips of the Week