Owning your own home is a cherished dream for many in the UK. However, achieving that dream often comes with a long-term mortgage commitment to pay the agreed purchase amount without fail. Rising house prices and evolving life priorities have many individuals asking themselves "Can I pay off my mortgage later in life or drag it on for a longer period?"
In this blog post we explore this question and consider financial implications, potential risks, and alternative strategies for managing your mortgage as you get older.
The Changing Landscape of Mortgages in the UK:
The ideal scenario would be to clear your mortgage before retirement. However, due to many economic challenges the world is facing and the UK being no exception to the rule, this has become a challenging task for many.
Since the pandemic property prices in the UK have risen to the extent that in some instances it outpaces salary growth, making it harder for younger generations to accumulate funds. And this contributes directly to not being able to carry out the instalments for those who have embarked on mortgage schemes.
Longer life expectancy in the UK allows the possibility to extend mortgage timelines. However, older borrowers might have a shift in priorities for balancing mortgage payments. With other life goals like travel, family, and career aspirations taking priority over making an instalment payment for an ongoing mortgage. If you fall back on your payments, you could be pressured by your lender to continue with the payments or risk losing the property altogether.
Benefits when settling your mortgages later than early?
There are some advantages associated with settling your mortgage later rather than early such as:
Increased Financial Flexibility: You may see financial opportunities that bring you better gain if invested than actually settling off your mortgage. For example, look for opportunities where depositing money in tax free accounts can bring better returns.
Cash liquidity: Mortgages are based on your future benefits. By paying off a mortgage, you gain a property, but this does not necessarily mean you can convert it into ready cash in a hurry. In these instances, you may want to retain some cash in a deposit rather than paying off and settling the mortgage.
Lower Interest Rates: If the current interest rates are low, this makes mortgage payments more manageable, allowing you to invest the extra money in other investments ideally aimed at getting potentially higher returns.
Evaluating the downsides of longer mortgage periods:
Higher Interest Payments: Possibly one of the most evident, when paying off a mortgage over a longer term, you'll accrue more interest, increasing your overall debt burden.
Increased Risk: Life uncertainties like job loss or illness could make timely repayments challenging. This could mean that you may consider having to take on an insurance policy such as critical illness to keep your family safe in case of such an occurrence.
Retirement Planning: Delaying mortgage repayment would mean you will have to adhere to a stricter retirement planning to ensure financial security at a later stage.
Strategies for Navigating a Later Mortgage:
If paying off a mortgage for a longer period suits you better, you may have to consider certain strategies in the event your long term plan doesn’t go accordingly.
Overpay Strategically: Even small regular overpayments can significantly reduce your mortgage term and interest paid.
Review Your Interest Rate: Regularly reviewing and refinancing for better rates can save you money in the long run.
Diversify Investments: Balance your investments with low-risk and potentially higher-return options to maximise your financial security.
Plan for Retirement: Prioritise retirement savings alongside your mortgage payments to ensure a comfortable life when you are retired.
Carefully assess your financial circumstances, risk tolerance, and life goals before making a decision. Consider consulting a financial advisor to create a personalised plan that aligns with your unique situation. Speak to a financial advisor at BVS Mortgages & Financial Services, they will provide the guidance you require.
Conclusion:
To worry or not to worry, that is the question. It depends on how well you prepare yourself for the future, especially when your mortgage payments are going to be around for a while. Making informed decisions will play a prominent role in your plan of action for the future. As we see in this article, a lengthy mortgage payment plan could work for you if your returns substantiate with better levels of income. Investing wisely could bring good returns, allowing you not only to pay off your mortgage, but also save something for your retirement. If old age is still far away, plan ahead, you could be looking at a great future void of worry.
Your home may be repossessed if you do not keep up repayments on your mortgage. |
* Approved by the Openwork Partnership on 28/02/2024