If you are thinking of buying a home, chances are you will need a mortgage. However, a mortgage and the interest that goes with it can take decades to pay off. And with the length of mortgages increasing to make purchases viable, an increasing number of new borrowers will still pay off their mortgages beyond their 65th birthday. Here is the truth.
How many homeowners will pay their mortgage in retirement?
According to new research data from UK Finance, more than half of new mortgages are taken out by people who will not have paid off their loan by the age of 65.e birthday.
Research found that 52% of new homeowner mortgages were made for terms beyond the borrower’s 65 years.e birthday. This is the first time that this figure has exceeded 50% since the records began.
According to UK Finance, the tendency to borrow later in life is due to the constant increase in mortgage terms as well as the aging of the UK population.
What are the consequences of continuing to pay a mortgage in retirement?
Carrying forward mortgage debt to later years has a number of implications. For some, this may mean having to work past retirement age in order to make monthly repayments.
Other homeowners may also have to release part of their pension in order to pay off their mortgage. This could expose them financially, especially if they do not have other sources of income or financial assets to rely on.
How to liquidate your mortgage before retirement?
If you don’t want to be struggling with mortgage debt during your golden years, there are steps you can take to write off the debt before retirement.
1. Reassess your current budget
It’s worth re-evaluating your budget and seeing if you can free up some extra money to pay off your excess mortgage.
Overpaying can help reduce your mortgage term by years. It will also save you a lot of money on interest. However, be sure to contact your lender to check overpayment limits to avoid incurring prepayment charges.
2. Increase your income
Generating extra income and using some of it to pay off your mortgage debt can help you pay it off faster. You can take care of a side business that you enjoy or even rent out a part of your house.
3. Maximize your savings
Maximizing your savings can help you build up a nest egg that you can use to pay off your mortgage.
For example, with interest rates on savings currently very low, it is possible to make your money grow faster thanks to the stock market, in particular thanks to a tax-efficient vehicle such as an ISA for stocks and actions.
What are your options if you’re still making mortgage payments in retirement?
Unfortunately, not everyone will be able to pay off their mortgage before they retire. If you’re still making mortgage payments in retirement, you have options.
By selling your home and buying a smaller one, you can free up additional cash to pay off your mortgage. Make sure you run the numbers first to make sure that the amount of money you release will actually be adequate.
Equity release allows you to unlock the value of your home without having to move. It’s about borrowing against the value of your property and receiving a lump sum of money that you can then use to pay off your mortgage.
Before you embark on this path, make sure you understand the implications. Your home will be sold upon your death or when you move to a long-term care facility. Money will be used to repay the loan plus accrued interest. Talk to your beneficiaries because freeing up equity means you will have less to pass on to them when you die.
If you don’t want your mortgage debt to overtake you in your golden years, it makes perfect sense to try and settle it before you reach retirement age.
That said, taking out a long-term mortgage that extends until you retire isn’t always a bad thing. If the repayments are good value for money and financially manageable, this type of mortgage can still be a viable option.
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