Older Britons with mortgages hoping to soon finish work may be surprised to find they still need to work to cover their rising mortgage repayments.
Becky O’Connor, director of Public Affairs at PensionBee, warned people planning for their pension years may need to act now to avoid being burdened with even bigger repayments.
She told Express.co.uk: “If you have savings built up, now might be a good time to use some to pay any remaining mortgage balance to avoid being hit by higher repayments.”
However, she also warned older Britons who face rising mortgage repayments may have to extend their working years to keep the repayments affordable.
Asked what people can do to cover their surging repayments, she said: “You could speak to your lender about extending your term or swapping to interest only if you are on a capital repayment arrangement currently, to bring monthly repayments down.
“If extending the term, you might need to work for longer than planned. If switching to interest-only, you will need to have a plan for how you will pay off the remaining capital at the end of the term.”
Rising interest rates over the past year and a half have meant monthly mortgage repayments for those on variable rate and tracker deals have continually increased.
Ms O’Connor warned many older Britons face an “abrupt rethink” of their retirement plans with the increasing cost of mortgage repayments.
She said: “Those on interest-only deals will not only face potential rate rises, but the additional headache of a looming deadline for repayment of their capital balances.”
She warned having a mortgage going into retirement can cause financial strain as people may have to take more out of their pensions to cover the repayments.
The pensions expert said: “Anyone who is considering this must bear in mind the potential impact of using up tax-free cash early on in retirement and then running the risk of not having enough money later on to maintain enough income for a decent living standard.
“Pensions are designed to provide this income. While it can make sense to use some of the pot to pay off mortgages, it’s good to be aware of what this can do to living standards in retirement.”
She said people should also learn about the different ways they can access their pension pots to find out which method works best for them.
She explained: “Annuities can offer fixed income for your whole retirement, whereas drawdown allows you to leave your pot invested for growth and take out what you need directly from your pot.
“Find out how much you would be likely to get monthly and annually with each of your options.
“Talk to your family members about your plan. Decisions over what to do with pensions and mortgages can affect your children and their financial plans, too.”
Another option for retired Britons is to consider bringing forward plans to downsize, particularly if this would allow a household to go mortgage-free.
Ms O’Connor said: “The stress of moving might now seem less significant when compared with the stress of finding hundreds of pounds more each month.”
She also encouraged pensioners to see if they can increase their income by topping up their state pension, and to check if they can claim Pension Credit.
Pension Credit can boost a household’s income by over £3,500 a year, topping up a single claimant’s income to £201.05 a week and a couple claimant’s to £306.85 a week.
People on benefits may also be eligible for Support for Mortgage Interest, a Government loan to help with mortgage interest payments. Britons should note as this is a loan, it has to eventually be repaid.
Ms O’Connor said pensioners can even rent out a room to boost their income. She said: “If you have a spare room, you might consider taking in a lodger to help pay the mortgage. This option isn’t for everyone, but many people do and find they enjoy the extra company.”
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