Divorce settlement and new home choices at 56: mortgage, pension or smaller house

[NellyAmelia]

I wasnt sure whether to post this in money matters or divorce so I went for both.

I’m 56 and about to start divorce proceedings and we have agreed a financial settlement but it’s the buying my new home part maybe after Christmas I’m not sure about after 24 years as a couple. I’m not sure whether to;

1.Buy a house that I can just afford on my part time teacher salary on a longer small mortgage then in 3 years when I’m 60 pay it off with my lump sum, I’m going to work until I’m in my mid 60s.

2.Take early retirement and a hit in my pension at 57 but have a house that my kids can visit and stay over It will take me over the 40% tax bracket by 9k but I’ll have more each month to do the things I want. Still working till my mid 60s.

3.Buy a much smaller house mortgage free but it would be very small - the mortgage rate is crazy atm and go with the smaller house bigger life thing. I’d have my modest lump sum as a buffer then.

For me this would depend on the number of children you have, their ages and where they currently live.
If they live nearby and are settled in their own homes then I would probably go option 3 or 1. If they live further away and likely to visit for weekends or are younger and likely to return home to stay then option 2.

I don’t quite understand option two. However, comparing one and three I would go for option three. I think it’ll give you great psychological security to be Mortgage free. If you buy in an area where there is maybe a B&B or a hotel, you can strike up some kind of relationships so you can put your children in there if need be. I’m assuming they’re quite adult.

I don’t quite understand option 2 - do you mean take your pension early so you can use your lump sum to buy a big enough house for your children to stay, but carry on working? Does that mean you will forego pension contributions in future (I’m not familiar with the teacher pension scheme)

How much lower will your pension be if you take it early? The commutation rate really matters- I know for the CS scheme it’s 4-5% but not what it is for TPS.

Option 1 sounds like a good one to me. I wouldn’t want to have a house so small that my children couldn’t stay, especially if you don’t live close.

Yes I would take a small hit in my monthly pension but as long as I live till I’m 82 I it’s still worth it as I take a lesser amount but for longer

I think I’m airing towards no1 I could take a 25 year mortgage so the monthly payments are lower too

I’m very confused. How can option 2 with early retirement get you a bigger house than option 1 with a mortgage?

I opt to be mortgages free in a smaller property unless the children actually stayed regularly as long as there’s spaces for dual use eg a home office with a fold up bed, living room with sofa bed. You don’t want to be mortgaged for long at least and bigger houses cost more to run as well

Sorry it doesn’t necessarily, I’d just have more money each month now rather than waiting until I’m 60. Sorry for being confusing my head us in a real pickle 🫣

I'd probably err to no. 1. How much of your lump sum would it takes up? Would you have enough left to feel comfortable? Are you able to take a 25 year mortgage out?

I'm assuming you mean draw your pension rather than early retirement in no. 2?

One thing to bear in mind - you say mortgage rates are crazy at the moment. They really aren't. We had a prolonged spell of unusually low rates so they might appear high, but they're still historically low. With so much instability in the world, you do need to allow for the fact that rates might rise.

I’d be inclined to lean towards option 3 but that’s me. I do find MN helpful which is why I’ve been here so long but it really could be worth your while to see a pensions adviser with specialist knowledge of the teacher’s pension - I think you want someone to take you through the consequences of every shade of decision. It takes a while for them to access all the info etc so I’d contact someone soon, like this month.

I’d always personally go for the lowest mortgage and lowest mortgage term so if I could buy mortgage free I’d do that if it was a reasonable option ( depending on kids etc)

then keep working and keep paying into pension fir as long as I felt able

Yes, this is really important. I retired 3 years early with a public sector pension. Before making a decision, I did a spreadsheet showing the impact on my lump sum and pension for every month I retired early.

I’m not sure I understand your options.

However, in a similar situation 7 years ago, I bought a tiny cottage that me and adult DC can just about all squeeze into for a few days over Christmas. It’s one bed with sofabed in lounge.

This left me with a lump sum I have used to pay for DC masters, fabulous holidays, and still have savings so I can support them as needed.

I have overpaid my mortgage and would be able to retire in a couple of years if I wanted to.

I did consider getting a bigger property and stretching myself but I am glad I didn’t.

I don’t know if this helps you at all?

At 56 will you be able to get a 25 year mortgage? I took a new mortgage at 48 and it was limited to 17 years.

I'd go for option 3. It will save you having to move again when you want to retire and have lower costs. But it depends on who many dcs and dgcs you have and how often they will visit.

I was in a similar situation and went for option 1. But not quite the same as kids hadn’t left home yet - and they still haven’t! It did mean I ended up with a house that isn’t my forever house as I had bought a modern town house with more bedrooms but not the things I really want in retirement - such as a sunny garden and a period house with character.
Anyway. Will the option you choose mean you are compromising on where you want to live forever? Moving is expensive.

I think you should speak to a financial advisor. I'm not sure you would qualify for a 25 year mortgage if you are already 57?
Depends on age of children and entertaining space in smaller house. I think there's a lot of freedom in mortgage free.

If there was an option to be mortgage-free, I wouldn’t want a mortgage round my neck at 56 regardless of how long, not if I was a part-tine teacher and had just my wage coming in. So option 3.

How small are we talking here re “very small”?

I agree with the above about age unfortunately. We were not allowed to have a mortgage beyond 65. Fortunately, it was inconvenient as opposed to being a problem.

@NellyAmelia A lot of women actually have to up their hours at work. You don’t seem to want to do this but it gives you better financial outcomes all round. You are not old and teachers never get a meagre lump sum. If dc aren’t at home, working part time has been a luxury. I’d prioritise having more money and a bigger pension. I’m assuming nothing from dh regarding pension? Not being able to have dc stay would make me avoid a small house. Telling them to stay in a bnb is pushing them away. So I’d up
my hours, get a mortgage and a “larger” house. Then I’d be happy I was getting a larger lump sum and a larger pension. A lower pension never catches up with a bigger one!

I put it into AI and it said yes because I intend to pay it off then I did a mortgage in principle with HSBC and asked for a 50k mortgage over 25 years and they offered a 132k mortgage over 13 years. I think I’ll see a broker.

Swinging a medium sized cat so ok I think.

Thanks. Yes I’ve only very recently gone part time after years of a full time leadership role. Thought this was my time to relax a bit just working 4 days just being a class teacher before all this divorce stuff happened.

I'd go mortgage free but as @PermanentTemporary said, see a specialist adviser. One who is legally obliged to advise you correctly and not someone who is just trying to sell you a product.
There are a gazillion ways to make a smaller place comfy for guests, however there is also great benefit to making your place a sanctuary for you and easier to meet the bills. Good luck.

How old are your kids ? If adults do they live near ?

being mortgage free is a huge plus