Recently, Halifax, Barclays and NatWest started offering 40-year mortgages. Since most first-time buyers are in their 30s, this means that 40-year mortgages could continue within their 70s. The higher prices of properties, cost of living and the rising retirement age have all contributed to the challenge of getting mortgage-free by retirement. This blog will briefly outline the changes made to mortgage repayments and some options for paying off mortgage debt more quickly.
Previously, the maximum age at repayment was 70, but this increased to 75 for those who are working. Lenders have recognised that more people are working even when they reach state retirement age which has influenced their decision to introduce longer mortgage terms up to the age of 75. This may be a positive change, particularly for those who are on interest-only mortgages as they may struggle to find a way to pay the loan by the mortgage term deadline. For those who are on interest-only mortgages and who fail to pay off their loan, they will be required to sell the property.
How to get mortgage-free by retirement?
Overpayments are one option for paying off your mortgage debt quicker before retirement. Overpayments refer to extra payments made in addition to the monthly mortgage payment requirements which will enable people to save on interest and get mortgage-free by retirement. There are many fixed-rate mortgage deals which enable people to make overpayments of approximately 10% of the total cost per year without having to face early repayment fees. Borrowers who decide to make overpayments should check the various deals available as some may be more restrictive than others.
A tax-free lump sum for those receiving their pension could also be used to pay off mortgage debt earlier. However, this may not be a feasible option for everyone as some people may not have enough money for their retirement if they use it towards paying off their mortgage.
Another option to get mortgage-free by retirement is to try to obtain a better interest rate on any financial savings that you have as this could also help to pay off mortgage debt at an earlier stage in your life.
Higher life expectancy, cost of living, purchasing homes at an older age and the greater likelihood of continuing work past state retirement age have had a major impact on whether people would be mortgage-free by retirement. Planning for your retirement is important – consider overpayments, utilising a tax-free lump sum if receiving pensions and obtaining a better interest rate on savings to pay off your mortgage debt at an earlier stage of your life as possible.
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