IO mortgage and pension lump sum

[blank]

Any major risks with switching to IO mortgage and then using pension lump some to pay off the balance?

Currently 40 with 20+ years left on mortgage, balance around £290k.

If I switched to IO it would save me ~£500 per month.
Putting an extra £500 per month in would cost me around half that due to marginal tax rates.

Looking at my current pension growth there's a reasonable chance it will be over £1M by the time I'm 57. Even more chance if I start putting an extra £500 per month in.

Anyone doing it like this?

[Puzzles]

Yeah it’s a pretty standard repayment strategy for IO in my experience.

[bennno]

blank said:

Any major risks with switching to IO mortgage and then using pension lump some to pay off the balance?

Currently 40 with 20+ years left on mortgage, balance around £290k.

If I switched to IO it would save me ~£500 per month.
Putting an extra £500 per month in would cost me around half that due to marginal tax rates.

Looking at my current pension growth there's a reasonable chance it will be over £1M by the time I'm 57. Even more chance if I start putting an extra £500 per month in.

Anyone doing it like this?

What’s you house worth? Generally speaking it’d need to be over £600k for lenders to consider i/o.

[ooid]

Obviously two main risks, expected return(down) of pension investments until retirement and cost of debt (up).

When you calculate both on your own personal terms, it is pretty standard nowadays, if you can also take the IO as all lenders have different strict criteria.

[alscar]

I suppose risks might include whether remainder of Pension is sufficient to meet your ongoing annual expenses , if using TFC lump sum whether said item will still be around in its current quantum and indeed what other plans you might have for paying off the mortgage ?
I imagine many people when paying off an IO mortgage have downsizing in mind.

[Mabbs9]

Changes to TFLS rules?

[Zigster]

Max TFCS is £268,275 unless the OP has some form of protection (which seems unlikely). The outstanding mortgage is £290k.

It’s unlikely to increase (it’s pretty much fixed now and I can’t see any government removing the cap) and potentially may even decrease.

So there is already an admittedly small gap between the balance and the possibly TFCS.

[blank]

Zigster said:

Max TFCS is £268,275 unless the OP has some form of protection (which seems unlikely). The outstanding mortgage is £290k.

It s unlikely to increase (it s pretty much fixed now and I can t see any government removing the cap) and potentially may even decrease.

So there is already an admittedly small gap between the balance and the possibly TFCS.

Yeah there's likely to be a small gap, although I'm in a fixed rate for a couple of years yet anyway.

[blank]

bennno said:

blank said:

Any major risks with switching to IO mortgage and then using pension lump some to pay off the balance?

Currently 40 with 20+ years left on mortgage, balance around £290k.

If I switched to IO it would save me ~£500 per month.
Putting an extra £500 per month in would cost me around half that due to marginal tax rates.

Looking at my current pension growth there's a reasonable chance it will be over £1M by the time I'm 57. Even more chance if I start putting an extra £500 per month in.

Anyone doing it like this?

What s you house worth? Generally speaking it d need to be over £600k for lenders to consider i/o.

Probably £550-600k so hopefully in the ballpark.

[bennno]

blank said:

Probably £550-600k so hopefully in the ballpark.

Perhaps do half and half, ie 50% repayment, 50% I/o

We did what you propose but only when we’d built sufficient pension to cover, mortgage providers won’t accept it as a repayment vehicle, you need to advise you’d sell to clear balance.