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Mortgage payments can usually be spread across decades, as they are often significant sums of money. However, as a general rule of thumb, Britons are advised to attempt to pay off their mortgage before their retirement. This is because this will be when their consistent stream of money – through a salary – will often end.
But as the impact of COVID-19 continues to be felt, it is thought many will still be paying their mortgage after the age of 65.
This could have a significant impact on how Britons will spend their retirement, and their ability to chase later life goals.
One in five borrowers will be unable to clear their mortgage debt before retirement, according to research from Hargreaves Lansdown.
But five percent of those asked believe they would never be able to pay off their mortgage in full.
There are a number of influencing factors as to why it is proving to be more difficult to pay off a mortgage.
Higher house prices mean people are getting on the property ladder at a later age, and longer mortgage terms are also proving more popular.
And with more people choosing higher education as an option, there is a domino effect of Britons starting their working lives later and with more debt.
This means purchasing a property can often be a distant dream.
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Commenting on the issue, Sarah Coles at Hargreaves Lansdown, said: “Even if you snap up a property at the average age of 34, and take out a 25-year mortgage, it only takes a little bit of life to get in the way to leave you repaying well into retirement.
“This doesn’t have to be the end of the world – if you’ve saved for a generous pension, and your mortgage will be fairly modest by then, it may well be affordable.
“However, if your pension can’t cover it and you’re relying on being able to work later in life, you open yourself up to all sorts of risks.”
For those paying off a mortgage in retirement, they may be forced to dip into their pension or savings – which may be a last resort.
As a mortgage is one of the biggest monthly outgoings a person can have, paying it off before retirement can give people the freedom to achieve other goals with their finances.
There are, thankfully, tips at hand for those who are looking to pay off their mortgage earlier.
The first is by making overpayments, which many providers allow up to a certain amount without incurring penalties.
Traditionally, overpayments are set at a limit of an extra 10 percent annually, allowing people to progress towards their goal quicker.
Remortgaging is also seen as a good way for Britons to become mortgage free.
Switching to a new deal could help homeowners save thousands if they time their change correctly.
Finally, many people could be sitting on a standard variable rate (SVR) which could mean they are paying more than necessary.
It is thought people could be wasting an average of £4,500 a year on certain unfavourable deals.
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