One in four, or 27%, of those in Generation X (people born from the mid-1960s up to the early 1980s) aren’t confident that they will be able to pay off their mortgages before retirement, according to new research.
Around 13% of mortgage holders aged 42-58 said they wouldn’t manage to pay off their mortgage by the time they reach State Pension age of 67. A further 14% are unsure if they will pay off their mortgage by this age, according to the research by retirement specialist Just Group.
Nearly half (45%) of Generation X who have a mortgage said that it was taking them longer to pay it off than they had hoped. The most common reason (34%) cited by those polled was that they’d had to extend their mortgage terms to reduce monthly payments.
Stephen Lowe, group communications director at retirement specialist, Just Group, said:
“People’s budgets are being squeezed as they juggle competing pressures. As a result, we are seeing growing anxiety among this demographic that many will approach retirement still carrying the burden of making their mortgage repayments.
“This is felt more acutely among those in London, where property prices are higher and nearly double the national average of Gen X homeowners with a mortgage worry that they will still be saddled with a mortgage as they enter retirement.”
If you’re worried that you won’t be able to pay off your mortgage by the time you reach retirement, here are some strategies that could improve your chances:
Speaking to an experienced mortgage advisor can help you to understand your options and get a great deal on your mortgage. If you’re looking for expert mortgage advice, you can speak to an independent mortgage broker with Unbiased. Every advisor you find through Unbiased will be FCA-regulated, qualified and unconnected to product providers – so they can offer you truly unbiased advice.
1. Switch to a better mortgage deal
Chances are, your mortgage is your biggest monthly outgoing, so it’s really important to make sure you’re not paying more than necessary.
The good news is that the Bank of England’s base rate is predicted to fall this year, which means it makes sense to review your mortgage sooner rather than later. Lenders have already started reducing their rates in anticipation of falling rates, so it pays to shop around for a new deal if possible. In particular, homeowners sitting on their lender’s standard variable rate (SVR) may be paying far more than necessary. Read more in our article Five good reasons to remortgage right now.
For example, if you have a 15-year £150,000 repayment mortgage at 60% loan-to-value (LTV), you’d be paying £1,450 a month if you were on the current average SVR of 8.19%. Your monthly payments would fall to £1,155 a month if you remortgaged to a best buy two-year fixed mortgage rate of 4.59% – a saving of £295 a month or £3,540 a year.
If your mortgage deal is coming to an end within the next six months, you can start the process of securing a new mortgage deal now. Lenders will usually let you sign up to a new deal up to six months before your current deal expires.
2. Overpay your mortgage
You can speed up the process of paying off your mortgage by making lump sum or regular overpayments each month if this is affordable. Read more about the benefits and the impact of making overpayments in our article Should I overpay my mortgage?
However, before you make any mortgage overpayments, check with your lender to see how much you can overpay each year without incurring any early repayment penalties.
You’ll typically be able to overpay up to 10% of your mortgage balance penalty-free each year, but always check your mortgage small-print as this can vary. This means that if, for example, you have a £180,000 repayment mortgage, you should be able to repay up to £18,000 without facing any early repayment charges. Bear in mind that the amount that equals 10% of your balance will reduce over the years, as your mortgage balance falls.
3. Consider an offset mortgage
Rather than overpay you remortgage, you might prefer to use your savings to reduce your mortgage balance. This can be done using an offset mortgage to reduce the amount you pay in interest overall, even if you keep your mortgage repayments the same. Your savings will be held with the same bank or building society as your mortgage and essentially offset against your balance. For example, if your mortgage balance is £150,000 and you have £30,000 in savings, you’d pay interest on a balance of £120,000 with an offset mortgage. This would reduce your mortgage term without needing to make overpayments.
Consider, though, whether this is the right option for you. You may be better off reducing your mortgage balance if you have savings that you don’t really need. Bear in mind that mortgage lenders will typically offer better rates to those with lower loan-to-value ratios, which is the amount you’ve borrowed compared to the value of your property.
Offset mortgages may be suitable for people who want access to their savings in the future, for example, but want to reduce their mortgage balance. Read more in our guide What is an offset mortgage? However, bear in mind that if you take out an offset mortgage, you’ll also give up interest on your savings account. This won’t work in your favour if the rate you can earn on your savings is significantly higher than your mortgage rate.
4. Shorten your mortgage term
You should be able to discuss a range of options with your lender to pay off your mortgage earlier. For example, shortening your mortgage term is one. This will increase your monthly payments, but you’ll pay off your loan over a short period. Read more in our article Can I change my mortgage term?
For example, if you reduced your £150,000 mortgage on a rate of 4.59% from 15 to 10 years, your monthly payments would increase by £407 a month from £1,154 to £1,561. You’ll pay off your mortgage five years earlier, and reduce the amount of interest you pay on your mortgage by around £20,480. Reducing your mortgage term is effectively another way of overpaying your mortgage.
Our mortgage repayment calculator can help you work out what your monthly repayments will be based on the interest rate, mortgage amount, and the length of your mortgage term. If you prefer to speak to someone – arrange to get expert mortgage advice from an experienced mortgage advisor.
5. Seek further help
A good mortgage deal may come with stringent acceptance criteria. This may include your income and earnings, the loan to property value ratio you are looking to borrow and specific criteria around the property itself. This means that you may struggle to access the best deals for you without expert help. A mortgage advisor can help you to find the best deal for your circumstances, do the sums on your behalf and work through the application process with you.
You can find out more about all the different mortgage options that may be available to you, and how they compare, in our articles Mortgages for over 50s: What you need to know and Mortgages for over 60s: what you need to know. Read more in our guide Should I get advice on my mortgage?
Speaking to an experienced mortgage advisor can help you to understand your options and get a great deal on your mortgage. If you’re looking for expert mortgage advice, you can speak to an independent mortgage broker with Unbiased. Every advisor you find through Unbiased will be FCA-regulated, qualified and unconnected to product providers – so they can offer you truly unbiased advice.
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