14th February 2019
Mortgages For Older Borrowers
More lenders than ever are offering mortgages for older borrowers but is this a good idea? We can help you decide what is best for you as an older homeowner.
The way people view having a mortgage into retirement has shifted in recent years. For a long time the common wisdom was that by the time you retired, you would have paid off your mortgage. You could then live comfortably mortgage free until death or downsize using cash generated from selling your house.
However, many of the million or so borrowers on interest-only mortgages are now approaching the end of their mortgage term. They do not have a way of paying off their existing loans apart from selling up. If they want to stay in their homes – and many do – they need to arrange a new mortgage. The other main reason home owners need to mortgage into retirement is that many are asset rich but cash poor. They would like to release some of the equity in their houses to use as an income or take as a lump sum to cushion retirement.
So what are their options?
Standard residential mortgages – As a first option it is worth going to the high street lender to see if they will provide a standard residential mortgage. Fees and interest rates will generally be the lowest available. Most high street lenders will not let a mortgage term run past a borrower’s 65th or 70th birthday. However they do sometimes consider extending beyond this if the borrower’s retirement income matches their lending criteria. It is key to note that each lender’s age limits are different – one in particular will lend up to the ripe old age of 99!
Make sure you come and talk to us. We are specialist mortgage brokers, we can do the shopping around for you. We know who will lend – and who won’t. Affordability will be key. You will have to be able to prove exactly what you will be earning – and spending – in retirement.
Retirement Interest-Only Mortgages – These mortgages, commonly known as RIO mortgages have sprung up in recent months following the financial regulator’s decision to give them the green light in March. They allow borrowers to simply pay the interest on their loan until they die or sell their property. This can also be when they are taken into long-term care. Again affordability is key here, whichever lender you choose.
Lifetime Equity-Release Mortgages – These types of mortgages have been around much longer. There are four different types all of which work in different ways.
Lifetime interest roll up allows homeowners to borrow money against the value of their house without having to make monthly re-payments. Instead the interest is added to the debt each month. Home reversion involves the borrower selling a percentage of their property to a lender in exchange for an income or lump sum. No capital or interest payments are made. The lender takes their percentage of the sale price when the house is eventually sold. Lifetime mortgages on a drawdown basis see the borrower agreeing to take out a loan and receive it in regular chunks. Interest is paid only on the amount that has already been drawn down. Hence interest rolls up more slowly than with other types of equity release. Finally, impaired lifetime mortgages are a roll-up product that takes the borrower’s health into account. The borrower can receive a bigger income or lump sum than they would otherwise receive, if they are in poor health and have greater needs.
If you are considering any of these options it is vital that you consult a specialist adviser. Here at The Finance Roome we offer mortgage advice tailored to your needs. We are whole of market and equity release specialists too. Call us or drop us a line if you have any questions about any of these products. We are here to help you decide what is best for you in your retirement.