Retirement is a significant life milestone that comes with a series of financial adjustments and considerations. A common concern amongst those approaching retirement, is what happens if they still have a mortgage remaining when they retire. In this article, we’ll explore how to manage a mortgage in retirement.
The reality of retiring with a mortgage
Many individuals plan their retirement with the expectation of being mortgage-free. However, this is not always the case, and an increasing number of retirees find themselves in debt upon retirement. In fact, a recent study showed that 1 in 10 retirees still had mortgage debt when they retired.
The reason this can cause complications is two-fold.
First, retirement often involves a transition from earning a regular income to relying on pensions, savings, and investments. This shift can affect your ability to borrow the amount you need.
Secondly, lenders will usually only lend up until a certain age - often 75 or 80. So as you get older, the amount of time you have to repay your debt decreases. This increases your monthly repayments.
Having a mortgage in retirement also means a portion of your monthly income will go toward servicing the debt. This can limit your discretionary income and affect your overall budget, which may mean your retirement isn’t as comfortable as you had hoped.
Luckily, there are ways you can make your mortgage more affordable, so that you can enjoy your retirement while still paying down your debt.
How to manage a mortgage in retirement
Extend the mortgage term. Some retirees choose to extend the term of their mortgage to reduce monthly payments. This can provide short-term relief but may result in higher overall interest costs. Bear in mind that your age will have an impact on how long the term can be.
Remortgage. If you have been in your home for a number of years, your property may have appreciated in value. The additional money built up in your home could be used to get a more favourable mortgage deal. Plus, if interest rates have changed since you last remortgaged, you might be able to reduce your monthly repayments by switching to a new rate.
Switch to a Retirement Interest Only mortgage. RIO mortgages allow you to borrow into retirement, and repay only the interest of the loan each month, which helps to keep the monthly costs low. The loan is then repaid when your home is sold, usually after the last surviving homeowner dies or moves into long-term care. However, the downside of this option is it may reduce the amount you are able to pass on to your loved ones.
Downsize or sell. Selling your current home and downsizing to a smaller, less expensive property is a common strategy to eliminate mortgage debt in retirement. The proceeds from the sale can be used to purchase a new home or pay off your existing mortgage.
Overpayments. If you haven’t yet retired and have access to cash through savings or investments, it might be worthwhile making overpayments on your mortgage in the run up to retirement. Typically, lenders will let you overpay by 10% of the remaining loan each year. The more you pay down your loan, the lower your monthly costs will be.
Budgeting. Create a comprehensive retirement budget that accounts for mortgage payments and other essential expenses. This will help ensure that your retirement income can comfortably cover these costs.
Seek professional advice. Consult with financial advisors or mortgage specialists who can provide guidance on mortgage management and help you explore the best options for your specific situation.
Conclusion
Retiring with a mortgage is a situation that many individuals face. While it may not be ideal, there are options available to manage a mortgage in retirement effectively. Early planning, budgeting, and seeking professional advice can help you make an informed decision.
Ultimately, the goal is to enjoy a comfortable and financially-secure retirement, whether you choose to retire mortgage-free or with a remaining mortgage. Remember, a mortgage is a loan secured against your home that may be repossessed if you do not keep up repayments on your mortgage.
The team at Saga Mortgages, provided by Tembo, can help answer all of your mortgage questions. You’ll get a personalised recommendation, and be able to speak to an advisor from an award-winning team. Find out more about Saga Mortgages, or start your journey today.
Ready when you are
Want to talk to us about Retirement Interest-Only mortgages? You can speak to an expert seven days a week.
