Research from Aegon has shown that 14% of mortgage holders believe they will have paid off their mortgage by the time they turn 70.
Ultimately, taking that kind of expense into retirement with you could cause financial issues later in life. Therefore, it is important to try to pay off as much as possible before leaving working life behind to try to reduce your monthly outgoings and give you more of your hard-earned pension to enjoy.
Fortunately, there are a range of things you can do to reduce your mortgage during your working years, with the aim of paying it off in full before blowing the candles out on your 70th birthday. These include:
- Making overpayments
If you find that you can afford it, you may wish to consider making larger mortgage repayments each month. This will mean that your remaining debt reduces faster, will result in paying less interest overall and being mortgage-free sooner.
If paying more each month is not an option, you can make lump sum repayments at times to suit you. This is the more sensible option for people who may sporadically receive financial gifts, or if you are expecting to benefit from a loved one’s estate in the future.
- Finding the best rate
Shopping around for mortgages can mean that you find a better deal and are able to continue repaying the same amount each month, but less of it is interest. That will help you to pay off the mortgage capital sooner, without needing to find extra money in your budget.
- Reduce your mortgage length
If there are no better alternative mortgages available, it is worth talking to your current provider to see if there are any adjustments you can make to your mortgage terms which will help you to repay faster. This could include reducing the length of your mortgage, which will reduce the interest paid overall and will mean that more of your monthly repayment affects the capital amount directly.
- Monitor your credit score
Your credit score is potentially the biggest influencing factor over the mortgage rates you can access. By improving and maintaining your credit score, you can be better prepared to compare the mortgages offered by providers. If you currently have a fixed rate mortgage, it is possible you will face an increase in mortgage payments, when your fixed rate ends, and you are moved onto your provider’s standard variable rate when it ends, which will be much higher than your current interest rate. Therefore, it is sensible to ensure that you are as well placed as possible to switch your mortgage to a provider who offers you lower rates.
Is repaying your mortgage before you retire necessary?
Not always.
There may be more pressing matters to take care of and it should not be assumed that a mortgage is the worst kind of debt to take into retirement with you, especially when, despite the recent base rate increase, rates are so low.
Unsecured credit, such as an overdraft or credit card can be much more harmful to your financial stability and should therefore be treated as a priority when trying to reduce your outgoings before leaving working life behind.
Alternatives to repaying your mortgage
When planning your retirement finances, the focus should be on putting money away to provide a sustainable retirement income. This will require you to know how much you need to support your desired lifestyle when you have finished working, and if that income needs to include provisions to make mortgage repayments, that is something you can include in your strategy.
It may be wiser to put any extra disposable cash into your pension each month. Whether that’s a personal or Workplace Pension, your contribution will benefit from tax relief. Choosing to redirect this spare cash into larger monthly Workplace Pension contributions won’t result in your employer making bigger monthly contributions, but there’s no harm in asking if they are willing to increase their share.
How can we help?
Contact us to talk about your mortgage options, ways to make repaying your mortgage easier and how it fits into the bigger picture of your financial plan.
Retirement planning is much more effective when the skills, experience and qualifications of a professional adviser are employed. By engaging with us, you may find solutions you didn’t know existed, as well as being able to make more confident decisions regarding your mortgage and finances.
For more information, please get in touch with us on 0800 612 8099.