Q I am a 56-year-old man with nine years left on my £70,000 mortgage. The mortgage is split so that £20,000 is on a repayment basis and the remaining £50,000 is interest only. I reckon I could sell my house for £225,000 so I have £155,000 equity.
I have no savings whatsoever and all of my cash is tied up in the house. I want to live a little before I retire at 60 and have a bit of spending money while I’m still young enough to enjoy myself.
I’m thinking of moving to a less affluent area with cheaper housing but lower house price rises. In the area I’m considering, three-bedroomed houses the same size as mine are typically £75,000 cheaper.
I’m trying to work out what the best course of action is. Should I:
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downsize and pay off all of the interest-only part of the mortgage now and just leave the £9,000 repayment with lower mortgage payments and a larger bank balance;
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wait until both mortgages come to end in nine years’ time and pay it all off then and buy something smaller at that time or;
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buy a cheaper house not so far away and remortgage and have not so much cash savings in the bank account? GG
A I’m totally flummoxed as to where your £9,000 figure came from but that’s my problem, not yours. If you managed to find a property costing £150,000 (ie £75,000 less than the one you are selling), you would be able to clear both the repayment and interest-only parts of your mortgage and have £5,000 in cash left over. That’s assuming there are no early redemption charges to pay on the mortgage – if there are, you need to factor them into your calculation.
If you were able to do that now and you could find a house of an acceptable size and price and in an acceptable location, it would give you four years in which to divert the money you are currently spending on your mortgage into a savings pot ready for your retirement. Even if you couldn’t find a property sufficiently cheap to be able to clear the mortgage in full, aiming to clear as much of the interest-only part of your mortgage makes a lot of sense. What doesn’t make sense is waiting until your mortgage comes to an end in nine years’ time if you are happy to downsize now and/or move to a different area.
From the last option you gave, I get the impression that you’re not that convinced that you genuinely want to move away from the area where you currently live. If that’s the case, then I would be tempted to go with your third option, with as small a mortgage as possible.
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