The prospect of having no mortgage is one which for many people seems a fairly distant dream.
In most cases we assume we will be repaying it until we retire.
In recent years this has been an easier situation to accept, with interest rates at very low levels.
Mortgage rates now more settled
But mortgage rates shot up sharply last year and, while they appear to have settled at lower levels, they remain far higher than we had got used to.
For those nearing retirement with their mortgage, hopefully, having reduced considerably, it brings into question whether they should consider repaying their mortgage early.
This does, of course, require the means to do so.
Like any aspect of financial planning, particularly when it can affect your retirement plans, any decision needs to be considered in detail.”
Nearly 1.5 million people in the UK will be remortgaging to a higher rate this year.
It is pretty certain they will be paying substantially more than they did before.
Those who have reached the age of 55 have the option of using some of their pension fund to repay the remainder of their mortgage in full.
It is important to note the tax-free cash available to withdraw is 25% of the fund.
In his Spring Budget statement last month the chancellor announced he would be abolishing the lifetime allowance for a pension. This had been set at £1.07 million.
Despite this, the amount which can be taken tax-free will be restricted to 25% of the current lifetime allowance. This equates to £268,275.
Firstly, you need to know whether the fund has enough to pay off the mortgage.
if your mortgage is due to run on well into retirement it could well be beneficial to repay this earlier if possible.”
But there are a range of other factors which need to be taken into consideration before any decisions are made.
Certainly, if your mortgage is due to run on well into retirement it could well be beneficial to repay this earlier if possible – especially as retirement income tends to be lower than that when in work.
There also needs to be some consideration of what might happen with future interest rates.
Independent advice ‘vital’
Also, if you do pay off the mortgage early, this would in turn potentially reduce the amount you have in retirement if you are planning to use this as a means of income.
This may be balanced by any increase in the value of your pension by the time you decide to retire.
Like any aspect of financial planning, particularly when it can affect your retirement plans, any decision needs to be considered in detail.
It is vital that suitable independent advice is taken before you proceed.
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There are no right or wrong answers with financial planning – only solutions which should be tailored to your individual circumstances.
Taking some advice now could well ensure you can fully enjoy the retirement you’ve worked so hard for.
Russell Anderson is an independent financial adviser at law firm Aberdein Considine.
