Having a mortgage in retirement can be very strenuous when it comes to final repayment because in most cases there is a drop in income when retirement arrives. This is the major reason why most people consider repayment of mortgages before their retirement to avoid battling with financial matters when they are supposed to be relaxed. However, even in light of the above, these mortgages are still a big possibility especially now when financial institutions are constricting their sale due to FCA intervention.
Planning Retirement and Mortgages
When you are considering taking a mortgage in retirement or at least having it paid off before retirement, there are a few questions that you will need to evaluate. The first thing you should think about is how the mortgage will help you in terms of benefits. The interest rate that you are likely to receive by securing the mortgage should dictate the entire process, because failing to plan may come with irregularities.
People thinking of mortgages always have varied investment plans and the returns brought about by their investments largely depend on the type of investment. For example, someone investing in a savings account will have a return in interest rates, but it will so low and slow, sometimes almost unnoticeable. Someone else investing in buying shares or in the stock market will reap big and fast although the risk involved is much higher.
Tax issues also play a big role in decision making where the balance on a mortgage gets lower and lower upon each payment. Tax thresholds are increased for retirees because of their low income capacity, therefore the bulk of what they pay services the principal rather than interest.
The other very important thing to think about is the amount you have as savings after retirement. Paying off a mortgage at this crucial period can be very tricky because it means it might end up delving into your savings, sometimes entirely. This scenario leaves you in a worse financial situation which limits you from doing other important duties.
Securing a New Mortgage in Retirement
Perhaps you have to gain a new mortgage in order to pay off the mortgage you currently have? Perhaps you have paid off your mortgage, but now you have a cash flow issue? If either of these scenarios sounds like something that is affecting you do not worry. There are solutions in the form of lifetime mortgages.
This is a mortgage you do not have to worry about having in retirement. The reason is how these products work. The traditional mortgage requires that you make a payment each month in order to pay off some of the principle amount of the loan and interest that has accrued.
Lifetime mortgages do not work this way. You have no payment unless you elect to go with the one product, interest only that requires a monthly payment. You still have interest accruing with this type of mortgage, but the interest compounds onto the principle of the loan. This means that at time of repayment the loan and its interest is due. Of course you may be expired by then or moving into a long term care facility.
In this situation your home is sold to pay for the lifetime mortgage you held on the account. The home might cover the entire loan or there may be inheritance for your family. It depends on the interest charged and the lump sum or withdrawals you made on your life on credit. The key factor is that you can enjoy retirement without worry because your original mortgage is gone and there is a plan to pay off the new one without stripping your finances down to the very bottom.
No Mortgage Option
You have one choice in paying off the existing mortgage and yet not gaining a new one. This is home reversion. This type of plan sells a portion of your home now, where you gain a lifetime tenancy agreement, rent free living, and there is no mortgage to pay back at the end of your life or move to a care location. This works for some and for others it gives up a piece of control on property they worked so hard to gain.
A mortgage in retirement might be ideal for you or it may not. The only way to know is to start looking at your options and choose the best one. Let financial advisers help you discover what might work for your situation. Consider and compare all products and eventually choose what you like best among them.
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