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What happens if you still have a mortgage when you retire?

MORTGAGES | 10.12.2021

Though paying off your mortgage before you retire might be one of your life goals, it isn’t always possible. With many people getting on the property ladder in their 30’s or 40’s and lenders offering very long-term deals, almost one in ten people who have reached retirement age are still repaying their mortgage. Here’s a guide on your options if you still have a mortgage when you retire.

Can I retire if I still have a mortgage?

You can, but you need to be prepared to choose from the following options: 
  • If it’s possible and you feel able to do so, you might consider working until your mortgage is repaid. Even if you’re only doing a part-time job, the earnings will supplement what you’re taking from your pension.
  • You could use your tax-free cash lump sum to reduce the size of your mortgage, or even pay it off completely. When cashing in a private pension, you’re normally entitled to take up to 25% of the fund in cash, with no tax to pay. Though this will reduce the annual income you can earn from the pension, it can help raise capital to reduce your mortgage debt.
  • If financially suitable, overpaying your mortgage will allow you to clear your debt more quickly and avoid it cutting into your retirement years.
  • Dip into your savings pot, especially if you only have a small amount still to pay on the mortgage. 
  • Switch to a better rate with the help of a mortgage broker.

How do I pay my mortgage when I retire?

You also have the option of getting a retirement interest-only mortgage. This allows older homeowners to borrow in retirement. It’s only available on your main residence and works in a similar way to standard interest-only mortgages, with two main differences: 
  • There’s usually no set repayment date, meaning the loan is paid off when you die, move into care, or sell the property. 
  • You only need to prove to a lender that you can afford the monthly interest repayments. 

Are retirement interest only mortgages a good idea?

Getting a Retirement Interest-Only Mortgage has many advantages, including: 
  • You’re more likely to have something to pass on as inheritance.
  • Avoid interest roll-up, which is where interest continually builds like with lifetime mortgages. 
  • The loan term isn’t fixed. 
  • You won’t have to downsize in order to release money from your home.  
  • They’re typically cheaper than lifetime mortgages. 
If you’re about to retire but still have a significant amount of your mortgage left to pay off, please don’t hesitate to get in touch with one of our experts at TaylorMade. We’ll help explore your options and provide a hand with the paperwork so that you can start to enjoy a stress-free retirement.
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