Getting a mortgage in later life is not always straightforward. Many lenders impose an upper age limit of between 65 to 70 and typically want the loan repaid before you reach the upper age. But all is not lost. There are signs that this is now changing, and lenders are realising that more of us are living longer and need mortgages which suit our needs in later life.
Topics to be answered in this article
What is a retirement interest-only mortgage?
Retirement interest-only mortgages are a relatively new set of products which are designed to help older borrowers who may struggle to get a typical residential mortgage. They allow you to borrow against your property and only pay back the interest (and not the loan itself) each month.
Retirement interest-only mortgages are similar to your typical interest-only mortgages but there are some key differences. With most Retirement interest-only mortgages, you only repay the loan when you sell your property, move into residential care, or pass away. However, some retirement interest-only mortgages do have terms like a typical mortgage, meaning you either pay them back after a set number of years or when you reach a certain age.
Instead of having to go through the often onerous steps you have to take to prove your income with a typical residential mortgage, you only have to prove that you can afford the interest. Some retirement interest-only mortgages also allow you to repay some capital as well as interest. This will cut down the size of your mortgage over time, meaning more of your property can be passed onto your loved ones.
How much can I borrow with a retirement interest-only mortgage?
Each lender has different limits on how much you can borrow. However, you are likely to be able to borrow less on an interest-only basis than if you get a deal where you also pay down the mortgage. There are also other requirements such as minimum property value, minimum income, and minimum loan size.
The amount you can borrow will be based upon an affordability assessment, looking at your income and outgoings to make sure you can keep up repayments once your only sources of income are from pensions, savings or investments, and not employment.
Why might you need a mortgage when you are older?
We are all living and working for longer but getting hold of a mortgage in your 60s and above can be difficult. However, lenders are increasingly taking a more considered approach when lending to older people.
There are many reasons why older borrowers might want to take out a mortgage:
- To purchase a property which better suits your needs in retirement.
- To release cash from your property to provide additional income to your pension.
- To gift money to a loved one to help them.
Another big motivation for some older borrowers is to remortgage away from their existing interest-only mortgage.
These deals were historically very popular and allow borrowers to only pay off the interest on their loan every month, ahead of repaying the capital borrowed in full at the end of the mortgage term.
However, thousands of these borrowers have no plan in place for repaying that capital, leaving them with the prospect of having to downsize unless they can remortgage.
Retirement interest-only mortgage vs Equity release
Retirement interest-only mortgages share some similarities to equity release, in that they both allow you to tap into your property’s value to access cash.
With equity release, you borrow a portion of the property’s value, but are not required to make monthly repayments (although some deals now allow you to do this). Instead, the debt is repaid once you die or move into long-term care and the property is sold. These products are typically called ‘lifetime mortgages’.
Because you don’t make repayments, the debt grows over time and can erode the value of your estate. This is not the case with a retirement interest-only mortgage.
With equity release, there will be less equity in your property to pass onto your family after you’ve died than with a retirement interest-only mortgage.
If you are considering equity release, it’s important that you get advice from a qualified financial adviser.
How can Goughs help?
If you are considering a retirement interest-only mortgage, it is important to discuss this with a financial adviser to work out whether this is the right option for you.
The easiest way to find out about how Goughs can help, is to come and talk to us. We can explain what we do and give you a chance to see what we offer. With a team of experienced property lawyers, you can be assured of the best possible service.
If you’re looking for an experienced property lawyer near you, someone who knows the Wiltshire property market inside-out, someone that will take you through the process step-by-step and complete your transaction as quickly as possible, please get in touch.