Paying off your mortgage before retirement may not be the best idea.
People strive through their working lives at attain their main financial goal – to have their mortgage repaid before they reach retirement age.
During one’s life, a mortgage will be the greatest financial outgoing each month & consequently is seen as a millstone around one’s neck. Hence, this is the reason to strive & eliminate this debt as soon as possible; the usual goal preferably before retirement.
According to the statistics, there are still approximately 12% of people carrying their mortgages through & into their retirement years with a substantial average balance of almost £60,000!
Attitudes are changing. The mentality of the older generations that debt is bad has dwindled & people can now see how mortgages can actually assist their retirement lifestyles. Particularly in 2011 with the Bank of England base rate at an unprecedented run at the lowest interest rate in history. Yes, retirement savers are suffering as a consequence, but the retirement borrowers are benefitting & using this situation to their advantage.
Therefore, having a retirement mortgage may not be so bad. Many people may have selection this option, rather than feel short of cash. Rather than a large mortgage, by keeping some semblance of borrowings into retirement, property owners can also use this mortgage to assist with estate planning & thus enabling mitigation of any potential inheritance tax (IHT) paid by their beneficiaries after they die.
This would involve totalling the assts; which would include the property & its contents, any savings/investments & then deducting the liabilities such as loans, credits cards & bills. If the mortgage is substantial, this will significantly impact on the net value of the estate and reduce any potential inheritance tax that may be due.
Nevertheless, this may not be the only advantage. Another popular reason for carrying on with a mortgage into retirement could be that the home owner could use the additional capital to increase monthly income & pay for lifestyle improvements. Considering the alternatives & living your longest holiday in constant financial plight, this makes a sensible option. Particularly the case as the beneficiaries may only need to sell the property anyway to pay the potential inheritance bill after you die.
Popular reasons for raising extra funds can be improvements to the home, buying a car, caravan or holiday home to retire & relax with. In today’s environment of first time buyer’s difficulty in obtaining mortgages, then how useful could it be to gift money to children, even grandchildren now & enable them to get on the first rung of the housing ladder.
The usual health warnings come with this. Any gifts made from one’s estate when over the inheritance tax threshold should be considered carefully. The seven year rule exists in that you need to survive this period after the date of the gift; otherwise it can still be included as part of the overall value of the estate.
