Keep calm & carry on

Reader reveals that keeping a cool head got them out of financial fix

I WAS highly impressed with your article on the problems facing a chap with an £80,000 mortgage debt which he would be unable to pay off in 2019 as he was only paying interest each month. His situation resonated with me, since in 2013 I found myself in a similar situation. At that time, I was approaching 60 and had a mortgage in excess of £100,000 with my endowment policies unlikely to cover the outstanding debt. Like your reader, I had a works pension that, in my case, I could access at age 60 or leave until my normal retirement age of 65 in 2018. If I took my pension at 60, I could receive a lump sum of 25 per cent of the pot valuation tax free, which worked out at over £100,000. I decided to do so despite it reducing my then monthly pension by about £300pm. I then paid off £75,000 from my mortgage, changed the residual balance to a repayment option over five years, cleared off my credit card debt and maintained my monthly payment at largely the same amount/ “I now anticipate I will clear my mortgage in 2018, but without using my endowment maturity sum due also in 2018. Basically, what I am saying is that with a cool head and good financial advice, it is possible to arrive at a sensible solution for this type of problem.

In addition, as the chap will soon access his state pension – which will be about £600 per month excluding tax and contracted out reductions – if anything, his financial situation may be even better.

I assume, too, that he probably has some form of endowment policy to cover the capital value of his mortgage, in part at least, then IF he still has that, it will be something positive to look forward to as well.

I really sympathise with this chap because I have been there but there are solutions that don’t necessarily mean he will automatically lose his home.

I hope your advice helps him and others in a similar situation. Anon CAN I firstly say thank you for your kind words? It’s always good to hear that people enjoy the questions and answers on this page, especially when the answers given chime with other readers’ own experiences.

You raise a few interesting points in your email that I thought I would share with our readers and perhaps expand on a little.

The first point you highlight is that the reader I replied to last

week is not on his own. You have had a similar experience and I’m sure thousands of other readers could also have responded with their own stories of mortgage payment difficulties, and the worry and anxiety that this brings.

It’s good to read from your comments that there are solutions out there and that the most important thing is not to panic.

You were lucky that you had a couple of endowments that you were able to fall back on when your loan was paid off.

Many borrowers don’t have that luxury since their mortgage was arranged on a true interest-only basis, without any way to repay it at all. Fortunately, very few loans are arranged on this basis today but for any readers out there who still have an interest-only loan, with no means of repayment, then it does make sense to look at conversion to a repayment loan as soon as possible, even though this will obviously mean higher monthly payments.

The other interesting point that you make concerns your pension.

You used some of your pension pot to repay a portion of your loan, even though this means that you were left with a smaller income every month.

This is a really useful benefit of most personal pensions, where up to 25 per cent of the value of your fund (slightly different rules apply if you are a member of your employers’ final salary scheme) can be taken as a tax-free lump sum when you retire.

This money is great for repaying any debt that you still have at that time.

You don’t have to take all of the money at once – instead of taking 25 per cent in year one you could take 2.5 per cent a year for 10 years, or five per cent a year for five years.

If you don’t have any debt to repay when you retire then dripping the money out over a number of years can provide you with a useful tax-free income when you retire.