Want to retire but haven't paid off your mortgage?
Money expert, financial journalist, TV and radio personality
Last updated 26th May 2020
Who wants to keep paying their mortgage into retirement? It can drain your purse and keep you stuck in a situation you don’t want to be in.
So, if you’re wanting to retire but you still have your mortgage holding you down, here are a few things you can do to free yourself of the burden.
Check your income
Firstly, although mortgage payments are a big outgoing each month, it’s worth checking how much you will be getting from your pension, your savings and your State Pension.
It’s possible – just possible – that you will be getting such a good income that continuing to pay off your mortgage, at least for a few years, won’t be much of a problem.
Check with your HR department at work to see what your projected pension income will be once you retire. Also, it’s really worth consider paying an independent financial advisor at this stage to look at all you pensions, savings and investments, together with what you expect to be your outgoings, so that they can give you a clear idea of how much money you will have to play with once you retire. If you don’t already have a financial advisor, you could find one at Vouchedfor.co.uk.
Switch to a cheaper mortgage
If you haven’t switched your mortgage to an alternative version for a few years then it’s highly likely that you can get a much better deal right now.
Here again, it’s a good idea to have a financial advisor or mortgage broker to help you get a better deal. They will also help you to work out if a cheap-looking mortgage really is good value once you have factored in the costs of switching (it could be a couple of thousand initially).
Reduce the mortgage term
If you want to pay off your mortgage in double-quick time (and good for you if you do!) then one way to help yourself do this is to ask your mortgage company to reduce the term of your mortgage. If you are going to switch your mortgage then it’s even easier as you can set out the term from the start.
This means that instead of having, say, another ten years to pay off your mortgage, you deliberately reduce that time to, say, just five years. This will mean that you will have to pay more each month, but less of the money you pay each month will go into paying off interest and more of it will pay the actual debt itself.
So ask your mortgage company, first, if they would allow you to reduce the term of your mortgage. If they do then ask how much you would have to pay each month if you reduced your term by, say, five years. If you could afford that quite easily each month then consider reducing the term it even further. Ask how much it would cost to reduce it by eight years, and so on. Make the term as short as possible because the shorter the time it takes to pay off the mortgage, the less you will pay overall.
Pay off lumps here and there
Another way to pay off the mortgage quickly is to add in extra lumps of money when you get them.
Not all mortgages allow you to overpay like this, but most will let you pay off up to 10% extra of the outstanding debt each year. If you have a variable rate mortgage, and certainly if you have an offset mortgage (where you offset the amount you’ve borrowed with the amount you have in your savings and current accounts with that lender) you should be able to pay off as much as you like each year.
If you do it this way, rather than reducing the term of your mortgage, then you have to be extra disciplined and make sure that any spare cash you have goes straight into the mortgage rather than being spent on fun things!
Use your savings
Do you have a nice lump of money in savings accounts? It’s helpful to have that cash to pay your way in retirement, but it’s likely that you are making less interest on it than you are currently paying on your mortgage!
Now, I’m not saying that you should empty out your savings to pay off the mortgage. It’s important to have money to fund your retirement and pay for a rainy day. But if you have a lot of money in savings and a relatively small amount still to pay on the mortgage, it could be worth using your savings to pay off the mortgage and then maybe carrying on working for a bit to top up your savings.
It’s worth talking to an independent financial advisor about this as they would be able to look at your incomings and outgoings and tell you if it would be advisable to use your savings.
You might not like the sound of this but frankly, if you still have a mortgage to pay, unless you know you’re expecting a really good pension, you’re going to have to keep earning for a while.
The obvious way to do that is to keep working in the job you currently have, if you’re able to. If it’s not something you want to keep doing, or it’s too strenuous, then you will need to find another job, or maybe take up one or more of the side-earners below.
Do some side-earners
- Can you drive? Great. You could get flexible work as a taxi driver through firms such as Uber or Kapten. Or you could work as a delivery driver for one of the supermarkets, for Amazon or for one of the many courier services like Yodel, Hermes or Collect+.
- Can you bake? Yum! Get into making cakes, biscuits, sweets and more to sell at car boot sales, garages and local markets. Or create decorated celebration cakes for weddings and birthdays.
- Do you love animals? Dog-walking is a wonderful way to make money, keep fit and get some fresh air all at the same time. At a minimum of £10 per dog per hour you can make decent money, particularly if you can look after them in your home as well.
- Are you friendly? Go and work in your local cafes, restaurants, pubs, clubs and bars to make money and have a good time with the punters.
- Are you in a city? There are all sorts of money-making opportunities in cities such as being a film extra or doing focus groups.
- Could you teach? Can you play an instrument or speak a language or are you particularly skilled in some craft or some sort of sport? If so then you could potentially teach it, doing one-to-one classes in piano or violin or teaching yoga classes, art classes or metalwork at the local adult education centre.
There really are endless opportunities for making money depending on where you are, what spare time you have and what skills you have. Take a look at the Make Money section on my website MoneyMagpie, for literally hundreds of ideas.
Reduce your outgoings
If you’re going to pay your mortgage off extra early then the best way to do it is to cut down on your spending as well as increasing your income and putting all the extra into overpaying the mortgage each year.
Go through your bank statements for the last year and see what you could cut down on. Switch all your regular bills where possible including your gas and electricity, phones, insurances and even your bank. Also see what you could give up such as your TV package, which may be overpriced, your gym membership if you don’t use it and anything else that, if you’re honest, you know you don’t use.
Make your home pay for itself
Make that lazy lump of bricks and mortar earn its keep!
There are lots of ways you can keep hold of your house while making money from it.
- Rent the whole place. This is a bit extreme but if you have somewhere free or cheap to move to, renting your whole home is a good way to cut costs and make money. Or you could offer your services as a house-sitter – perhaps through housesitters.com – where you look after other people’s homes while they’re away (at about £20 a day) and you rent out your own home while you’re there.
- Rent a room. The handy thing about renting out a spare room is that the first £7,500 of income is tax-free. If you don’t like the idea of someone being there full-time then try MondaytoThursday.co.uk or others where you just get people who need a place to stay during weekdays.
- Rent to foreign students. If you rent your room to foreign students you don’t have to put up with the same person for months. They usually stay for no longer than six weeks at a time. Rates vary from region to region but you can also make extra money by offering breakfast and even dinner each day. Get in touch with your local language teaching colleges to offer a room. You can find them through ialc.org which has a list of language schools around the UK.
- Rent to tourists. If you live somewhere popular rent your home, or a room, to tourists through sites such as Airbnb.com or Booking.com. That way you meet lots of different people, usually just for a few nights at a time.
- Run a B&B. This involves more work but it can be rewarding if you have a home with a lot of bedrooms. You will have regular outgoings with breakfast food, washing, cleaning and possibly hiring extra staff to serve the guests but it can bring in a good, regular income.
- Rent out your driveway. If you have a garage or driveway that you don’t use, but you live near a station or a popular venue, you could rent them out as parking spaces for drivers. You could try Parklet.com or JustPark.com to advertise your space to rent.
- Rent your loft or garage for storage. Alternatively you could also rent out the garage or your loft as storage space for local people. For example, try spareground.co.uk to advertise the space.
It sounds extreme, and it is rather, but if you’re nearing retirement and feeling burdened by your mortgage, then now could be a good time to sell up and move to a smaller, cheaper home while you have the energy to do it. That way you will pay off the mortgage in one fell swoop and start afresh with no big payments to make.
It’s not right for everyone and there are many reasons why you wouldn’t want to do it:
- You love your home and want to stay in it for life
- Once the mortgage is paid off you won’t have enough money to buy another place
- The cheaper places are too small for your needs
- You would have to move out of your area to afford something and you don’t want to do that
However, if you’re not completely besotted with your home, the advantages of paying off the mortgage and downsizing are:
- You don’t have that mortgage burden hanging over you. You own your home outright
- A smaller home is likely to be cheaper to run as well as being cheaper to buy
- A move can mean the start of a new life and all sorts of exciting possibilities
So don’t reject the idea out of hand. Think it through and discuss it with your partner and your family. Keep an open mind and think about the kind of lifestyle you would like to have and how you can fund that.