Warning to one in six pensioners considering using payments to clear mortgages

Warning to one in six pensioners considering using payments to clear mortgages (Image: Getty) Nearly half of Britons aged over 55 on an interest-only mortgage are unsure about how they will pay their loan off in full when the time comes, new research reveals. The survey carried out by online pension provider PensionBee found one in six were considering using their pension to pay off the lump sum, and experts are warning of the implications. Becky O’Connor, director of public affairs at pension provider PensionBee, said: ‘The current mortgage rate rise shock may be contributing to an abrupt rethink of retirement plans and causing worry and uncertainty among the population of older homeowners still repaying loans. ‘Anyone hoping to wind down from work as they approach their pensionable years and who still has a mortgage to pay could face a significant reality check in the coming months. Their mortgage could suck away even more of their disposable income, potentially forcing them to work for longer.’ Ms O’Connor pointed out that those on interest-only deals will not only face potential rate rises but also the ‘additional headache’ of a looming deadline for repayment of their capital balances. 16 percent of over 55s are considering using their pension to pay off an interest-only mortgage (Image: Getty) According to PensionBee’s new survey, less than half of over 55 respondents said they are on capital repayment mortgages, 40 percent said they are on ‘part capital repayment, part interest only’ and almost one in five (18 percent) of over 55 respondents with mortgages are on interest-only deals. The terms of an interest-only mortgage mean that when a borrower gets to the end of the specified mortgage term, they will need to have enough cash available to pay off the remaining capital balance. Almost half of mortgage holder respondents aged 55 or over admitted they are unsure how they will pay off their mortgage in full. The most common remaining mortgage balance was less than £50,000, however, a small proportion (six percent) of respondents reported their balance exceeding £250,000. Using a capital lump sum was noted as the most common way respondents were planning to pay off their mortgage in full, while using a pension (16 percent), selling the house (11 percent) or using equity release (five percent) were other options being considered. Ms O’Connor said: ‘It’s worrying that almost half of respondents in this older age group are not sure how they will repay their mortgage in full. One in five are pinning their hopes on a capital lump sum, while one in six think they will use their pension. ‘People can access their pension from age 55 and can take 25 percent as a tax-free lump sum. With mortgage rates rising so rapidly, it may be tempting to tap the pension to pay off a home loan.’ Ms O’Connor continued: ‘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.’ According to a pensions expert at Penfold, Britons should use the ’25 times rule’ to work out how much to have saved for a ‘comfortable’ retirement. Read more about that here .