Wealth Check: 'I want to pay off my main mortgage early'

Peter Martin, 48, is a self-employed property manager and he and his wife own their home and two further buy-to-let homes.

"I want to pay off my main mortgage early, ideally before my retirement," says Peter. "I've been working for Holiday Home Management for almost three years. The flexibility suits me with small children and I earn around £500 a month." But he adds, "I haven't given retirement a great deal of thought. It seems to be in the distant future, but I want my income at retirement to match my current disposable income."

Case notes

Peter Martin, 48, self-employed property manager, Paignton
Income: Peter earns around £500 a month but between him and his wife, the family has a household income of around £50,000 a year.
Monthly spending: The family spends around £2,500 a month, the majority of which goes on food, petrol and mortgage payments.
Debts: Peter and his wife have mortgages on three properties but no other outstanding unsecured loans.
Savings: The couple put around £150-£200 into individual savings accounts (ISAs) a month.
Pensions: Peter's wife has a final salary NHS pension, while Peter has two personal pensions.

Three independent financial advisers offer Peter advice: Donna Bradshaw of IFG Group, Martin Bamford of Informed Choice and Simon Hodge of Simon Hodge Financial Planning.

Mortgages

The advisers all applaud Peter's decision to take out fixed-rate mortgage deals last year on his three properties, and recommend he sticks to fixed-rate lending. "When his fixed rates end, Peter should shop around for the best deals at that time, says Donna Bradshaw. "Price comparison sites have the best rates."

Deciding to pay extra cash into the mortgage debts will save Peter and his family more interest than he would earn putting that money into his savings. But Martin Bamford warned that Peter should be clear about how long it will take to pay off his debts. "Peter has a sound financial goal but his mortgage will not finish until three years after he reaches state pension age," he warns. "A good first step would be to review his household expenditure and see how much extra he can put towards paying off the mortgages early."

But Peter should check whether his lender will charge him for overpayments or paying the loan off early. Many deals include early repayment charges, which charge borrowers if they pay off more than a certain percentage of the loan, usually on a sliding scale for the first five years.

Retirement

The advisers are far more concerned about Peter's pension than his mortgages. "Peter has not thought about retirement but it is essential that he starts to do so," warns Simon Hodge. "As things stand, he is only 17 years from the national retirement age of 65 and assuming he lives for 20 years into retirement, he now has less time to save than he will have to spend."

Peter's wife, on the other hand, has one of the best pensions available, as a member of the NHS scheme, and could consider supplementing Peter's retirement costs.

Meanwhile, Bradshaw warns against relying on property to fund retirement: "Peter may see his investment properties as his pension, but there are significant risks involved," she says. "Property is also a highly illiquid asset and there is a risk that when the cash is needed it will be difficult to access if market conditions are bad."

She urges Peter to use an online pension calculator to determine how much he needs to contribute to his pension. She recommends that everyone contributing to a pension increases those savings each year in line with their earnings.

Savings & Investments

The advisers agree that it is good news that Peter and his family have no outstanding debts other than their mortgages, but warn that the family needs to build up a reasonable cash emergency fund. "The Martins should look to have at least three to six months of income on deposit or in an accessible account," suggests Hodge.

Protection

Peter has a young family, and although he has some life insurance to cover his mortgage plus an additional fund, the advisers believe Peter should consider boosting these policies. "With young children, it is imperative that Peter makes provision should he or his partner die while they are still dependent," says Bradshaw. "Peter and his wife should work out how much the family needs to live on."

Family income benefit is a low-cost life cover that provides a fixed income for an agreed period, she says.

To find an independent financial adviser in your area, visit www.unbiased.co.uk

For a free financial check-up, write to Wealth Check, 'The Independent', 191 Marsh Wall, London E14 9RS, or email cash@independent.co.uk