More than half a million 40- to 70-year-olds in England intend to use part or all of their pension to repay their mortgage balance, new research from specialist insurer Partnership reveals.
While the majority tend to take a more traditional approach to managing their mortgage – either making monthly repayments until it is paid off or making lump sum payments in addition to monthly contributions – some have other ideas.
One in ten intends to use their tax free pension lump sum to repay the outstanding balance on their mortgage and one in 20 plans to use a pension to repay the outstanding balance on their mortgage.
Another 7 per cent aim to have savings or investments to meet this cost – suggesting they may hold one of the estimated 2.2 million interest-only mortgages outstanding on lenders’ books.
Six per cent will use an inheritance to repay their mortgage and 3 per cent will take in a lodger to help them meet this cost – neither of which are guaranteed sources of finance.
Mark Stopard, head of product development at Partnership, says:
“It is worrying to see that over half a million people in England plan to use all or part of their pension to repay their mortgage. This suggests that the number of people who actually need to do this is likely to be far higher as unexpected events such as redundancy, illness or family financial emergencies cause issues.
“While it is natural for people to want to retire debt-free, the purpose of these savings is ideally to provide an income for their retirement – which can last up to 30 years or more. Although the state pension will provide a very basic safety net, it is unlikely to be sufficient for people to have as comfortable a retirement as they might wish.
He adds: “People need to focus on repaying their mortgage as early as possible and avoid traps such as remortgaging for the full period each time they take out a new deal. Even those who are currently retiring have options such as working longer, downsizing or taking out an equity release plan – all options that will help to keep their pension funds intact.”
How will you repay your mortgage?
| Keep making monthly repayments until it is paid |
58% |
2,259,004 |
| Make some lump sum repayments in addition to my monthly repayments |
22% |
865,519 |
| Use my tax free pension lump sum to repay outstanding balance |
10% |
389,483 |
| Have savings/investments set aside to repay outstanding balance |
7% |
268,311 |
| Use an inheritance |
6% |
225,035 |
| Use my pension to repay outstanding balance |
5% |
199,069 |
| Will take in a lodger to help repay my mortgage |
3% |
112,517 |
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