Over one million over-50s could have to sell home to pay mortgage
Shortfalls on endowments leave people with difficult choice to make to clear their interest-only mortgage.
There are 6.3 million over-50s with an interest-only mortgage who bought an endowment to clear the lump sum at the end of the term, according to new research by Saga. However, two-thirds say the endowment will fall short.
The average mortgage debt for this group is around £42,000. And Saga says a third of could need to sell their home to make up the shortfall.
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How people plan to pay off mortgage
Two-thirds of over-50s are planning to cover the deficit with a combination of other savings and investments, by paying off the lump sum each month or by extending their mortgage to give them more time. Recent research by specialist insurer Partnership found that around half a million people were planning to use their pension, which could leave them facing the prospect of selling their home later on to fund their retirement.
For the remaining third without significant savings or investments, downsizing to another property is one very obvious way to pay your mortgage off. It could also release money to gift to family now as a way of avoiding Inheritance Tax.
And while it ultimately means if you were planning for your family to inherit your home they’ll receive less, at least the mortgage will be clear.
Another option is equity release, where you continue to live in the home but you sell a share to a company in return for some of its value.
Be aware that this can be a very expensive option, particularly if you live for a long time, as you will pay interest on the equity you’ve borrowed.
And the equity you release will be less than the value of the share of your home you sell.
Having said that, it can be a very viable solution for some people. Just make sure you understand what you’re getting into and use a regulated company. For more, read our guide Equity release pros and cons.
If you are really struggling, contact your lender as soon as possible to discuss your options.
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More on planning for retirement:
How to work out how much you need to save for retirement
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Hi You Guys. looks to me as though you all went down the high street to one of the Banks, Which indecently ONLY sell their own products. you should have ALL tried to source an Independent Mortgage Broker that has access to the Whole of Market lenders and has a far superior knowledge of the Mortgage Market. Vern Looks like you are paying over the top for yours!! Nick. it is the Public that have been taken for a ride for the public sector pensions, the government are now struggling to cove the Gold Plated Pensions the fat cats are getting and not so fat cats as well!!! and Stephen surely you must have changed Mortgage lender by now!!! or do you have refusal from lenders with language like that you have used.
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Endowment worked well for me because I was able to pay off lump sums during the life of the mortgage. I could have carried on paying interest and the mortgage, but with 10 years to go, I calculated that by cashing in the endowment that would pay off my mortgage. I did this and had a little left over. Hardly the amounts projected at the beginning mind! This was academic as a divorce followed soon after. Now I am enjoying my second mortgage which is an interest only type with fixed interest of 4.99%. I would have been better off with a variable mortgage as it happens. Again I have paid off lump sums to reduce the repayments. Would a repayment mortgage have suited me better? Who knows, but the interest only mortgage and the endowment mortgage before have both suited me for my circumstances.
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25 year repayment with a 10% deposit. NOTHING ELSE. I was conned into an endowment but after 4 months realised what a mistake I had made and changed to a straight repayment. Damn glad I did. Interest rates were going up and the interest payment on the endowment ramped-up more than a repayment mortgage. I'm afraid it is still a case of survival of the fittest. I have no sympathy. If I could see they were a mistake, so should a lot of others. It's like the government promoting private pensions back in the 80s. There were people with rock solid public sector pensions being taken for a ride. I calculated the whole thing out and for the same payment, these private pensions were going to pay a half the payments than from their employment system. I'm afraid the gullible will always get conned, and there seem to be a lot of them in the UK. I'm waiting to see what happens when interest rates go back up. That will be devastating for huge numbers, yet they still flock to borrow huge sums to buy overpriced houses.
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07 November 2014