Nearly Too Late For Your Mortgage

I hope that there aren't too many people who are approaching retirement and want to fully own their home, but are running behind. But if you're in this boat, here are some suggestions.

As I wrote in Start Late, Finish Rich, there are no miracle answers for people who are starting late with a small or non-existent retirement pot. However, it could be even worse if you don't expect to fully own your home by the time you retire. This is not a pleasant subject which is possibly why I've never seen an article on it before. You shouldn't despair though; the earlier you get around to sorting this out, the better off you should be in your later years.

How you decide to handle this will depend on your savings, the state of your retirement fund, your attitude to risk and, if you already have a property, how much you have left to pay off on your mortgage and over what time. Here are some of my thoughts on the subject.

Let's start with renting. If you rent still, you could continue to do so. You save your spare money (if you have any) and you invest the difference.

The first problem with this is that although the stock market has performed very well over the long term, over shorter periods your investment is risky, regardless of where you invest it. Ten years is usually seen as a sensible time period for investing in the stock market. But if it's your last ten years before retirement and you're going to rely on this pot of money, the downside if your investment goes wrong is a lot greater than average. The second problem is that you'll be paying rent for the rest of your life, and on a much lower income when you retire.

If you have a fair pot of savings you have to choose. Do I want to invest this for my retirement? Or do I want to use it on my own property (either as a deposit, or to pay off my mortgage earlier)? The great advantage of the latter is that it will leave you with no rent or mortgage to pay when you retire, which is probably your biggest household bill at present.

If you can afford it, you may also consider paying off your mortgage over a relatively short term, say ten or fifteen years. Your monthly payments will be much higher, but, if you can manage it and live a frugal life, it should pay off in retirement.

If you can't do this, you can get a longer mortgage. Whole-of-market broker London & Country reckons that most mortgage providers will lend up to the age of 70. Some, such as Halifax and Abbey, have no age restrictions. When considering this option, think not just about your ability to pay the mortgage now, but also about your ability to pay off your mortgage later on, particularly if you're planning to retire before the mortgage is fully repaid.

When you get even closer to retirement, you may find that a mortgage offers more options to play with than if you decide to keep renting. You could continue to work, even part time, past the state retirement age.

Alternatively, you could downsize your property when you retire, to help pay off the remainder of the loan. Also, you can take up to 25% of your pension pot as a tax-free lump sum, which could be used to pay off your mortgage. The main downside of this is that taking the lump sum means you'll get a much smaller annuity (monthly pension income). One more thing to watch out for is any early redemption penalties on your mortgage.

One other, more extreme, option proposed by London & Country is that, if your outstanding mortgage is just 20-30%, you could take out an equity release scheme to pay your mortgage. Of course, this will probably leave your descendants with little or nothing to inherit.

Whatever you do, you're probably going to have to live frugally, but buying a property, one way or another, will often give you the best chance of a better quality of life through your senior years.

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