One of the potential consequences of the new pension freedom rules introduced in April was a rise in the number of people repaying their mortgage.
According to new research from the specialist insurer Partnership, just over half a million people in the UK intend to use all or part of their pension to help repay their mortgage balance.
The research found that the majority of 40 to 70 year olds with mortgages intend to meet their obligations via monthly repayments and by making additional lump sum payments, up to 9% (approximately 631,000 people) intend to use their retirement savings to repay their mortgage.
This could mean using their entire pension pot to repay the mortgage or just the tax-free cash.
This is lower than the figure recorded last year when 14% intended to repay their mortgage with cash from their pension, as more people are looking to more traditional methods to repay the outstanding balance on their mortgages.
That said, 8% (approximately 561,000 people) told Partnership that they intend to rely on an inheritance to repay the outstanding balance on their property and 7% (approximately 491,000 people) confess they don’t know how they will meet their mortgage repayment obligations.
We’ve written recently about the risks of relying on an inheritance windfall when planning for your financial future.
A pension pot can go down as well as up in value, so using it to repay a fixed monetary obligation, such as a mortgage, is not a ‘no risk’ financial strategy; but it’s a lot more certain and under your individual control than hoping that the receipt of an inheritance will clear your mortgage balance.
Whatever you plan to do to repay your mortgage in the future, it’s important to have a plan.
For each mortgage repayment strategy, carefully consider the potential risks to success and, where possible and affordable, insure accordingly.
