Is a Retirement Interest-Only mortgage right for you?

We may all dream of living out our retirements in luxury. But the reality is that thanks to rising house prices, many of us will still be continuing to pay our mortgages long after we’ve reached retirement age. You may be looking to downsize to a new home and feel that you need a small mortgage so that you can still afford life’s little luxuries. You may want to release some funds from your property’s equity to enhance your pension, or you may want to help a loved one afford a home of their own.

There are many reasons why those over the age of 55 may be looking for a new mortgage. The introduction of retirement mortgages is a way for the mortgage sector to adapt to these changing needs and showcase continual support for older customers.

But what are retirement interest-only mortgages, and how do they differ from standard residential mortgages?

Let’s find out.

What is a retirement interest-only mortgage?

Retirement interest-only mortgages are available to those aged 55+. These are loans secured against the value of your primary residence, and you will only ever pay the interest portion of the loan. As you are not repaying any capital, the loan amount will stay the same.

Retirement interest-only mortgages are similar to traditional interest-only mortgages. However, you will only repay the capital when you sell the property, move into a residential care home, or pass away. If you are taking out a retirement mortgage, you must prove to your mortgage broker that you can afford the monthly interest payments.

As retirement mortgages are relatively new to the market, they may only be accessible via a mortgage broker. If you think that a retirement mortgage could be the right option for you, please get in touch with us.

Our dedicated mortgage brokers will be able to offer advice and guidance.

How much money can be borrowed with a retirement interest-only mortgage?

As with any mortgage, the amount of money you can borrow via a retirement interest-only mortgage will depend on which lender you are working with.

Some lenders may cap the amount that you can borrow. Others may stipulate minimum property values as well as income and loan size.

At Mortgagemove, our team of experienced mortgage brokers know how to find the most suitable mortgage deals for our customers. If you are considering a retirement interest-only mortgage deal, we will calculate your affordability and confirm how much you can borrow.

To help us with this calculation, we will need to know:

  • Your property details including an accurate valuation
  • How much money you wish to borrow?
  • Details of any dependents
  • Your retirement ages
  • Your income (employment and pension details)
  • A complete list of your monthly outgoings

What are the benefits of taking out a retirement mortgage?

There are a few advantages of retirement mortgages, and specifically retirement interest-only mortgages.

You do not need to be retired to benefit from a retirement mortgage. We know that many people are choosing to work until their twilight years. You could still be in full-time employment. Some lenders may have minimum age requirements, but generally, RIO mortgages are accessible to those aged 55+ who receive a state, private, or workplace pension.

With a retirement interest-only mortgage, you will only ever repay the initial value of the loan. Your repayments will cover the interest portion, which will be at a pre-agreed fixed rate. This means that your loan value will never increase – unlike standard mortgages. If your home has risen in value during the mortgage, you may find that there is money left over to pass onto your loved ones as an inheritance once the balance has been paid.

Retirement mortgages have no specific end dates. Instead, they will last you for a lifetime.  These mortgages only require repayment when you sell your property or move into residential care. As a result, you can feel confident that you can remain living at home for longer. However, it is essential to remember that the mortgage balance will have to be repaid. So, if you plan to leave your home to a loved one as an inheritance, you may need to find a way to repay the loan capital.

You can convert your interest-only mortgage into a retirement interest-only mortgage to help you to release equity from your home. This could enable you to top up your pension or provide you with a better standard of living.

Why might you need a retirement mortgage?

Access to standard residential mortgages is much harder for those aged 60+ because repayment calculations are often based upon a person’s earning potential. However, lenders are now taking a more flexible approach to mortgage lending. The introduction of retirement mortgages is a way to ensure that older borrowers are not disadvantaged.

As we mentioned earlier, there are many reasons why someone may consider taking out a retirement mortgage, especially on an interest-only basis.

Before the credit crunch in 2008, millions of people were signed up to interest-only mortgages because they offered lower monthly payments instead of repaying the capital. However, many of these borrowers are now coming to the end of their mortgage terms. These people are faced with potentially losing their homes if they cannot repay their mortgage loans. This is a ticking timebomb, and lenders are doing what they can to prevent thousands of people from becoming homeless. As a result, many borrowers are choosing to switch to a retirement interest-only mortgage deal. These mortgages allow them to retain their home for the rest of their lives until they decide to sell or move into a residential care home.

In other scenarios, a person may be looking to downsize and may wish to take out a small mortgage to use some of the equity from their previous home to fund their lifestyle or top up their pension.

Others may choose to mortgage their home via a retirement interest-only mortgage so they can provide financial support to their loved ones. By releasing some of the equity you have in your property, you can provide essential support to those in need. However, it should be noted that if you are taking out a retirement mortgage to help family members, some complications could arise due to inheritance tax. In these circumstances, we suggest that you take detailed advice from a qualified financial adviser.

Is a retirement mortgage the same as an equity release?

They are similar because, with a retirement mortgage and an equity release loan, you are withdrawing money from the equity within your property. However, retirement interest-only mortgages may be a better option.

With equity release, you may not be required to make any repayments on the initial loan. Instead, your interest will be rolled up and added monthly to the loan amount, ready to be repaid at the end of the loan. However, with no interest repayments, the cost of your loan will quickly increase – especially if compound interest is factored in. This could mean that equity release loans could be costly.

In contrast, with a retirement interest-only option, you are benefiting from the release of some equity from your home. However, you are required to make monthly payments to cover the interest costs. At the end of your loan agreement, the value of the initial loan remains the same, and you will be less likely to have been impacted by compound interest. This means that you may have more value in your home to pay for your care fees or share as an inheritance with your family.

There are pros and cons to both equity release and retirement interest-only mortgages. We suggest that you take comprehensive financial advice to decide which option is best for you.

We can help you identify the best retirement mortgage option for you

More and more lenders are starting to provide comprehensive retirement mortgages. With many different options on the market, it can be challenging to know which deal is best for you and your family.

Our team of experienced mortgage advisers is well placed to identify the right retirement mortgage for your needs. As part as our advice, we’ll explain clearly to you how the mortgage works and how the repayments will take place when the time comes. Everything we do is designed with our customers in mind, and we promise to make it as simple and easy as possible.

To find out more about how we can help you find the right retirement mortgage, please call our freephone mortgage advice line on 0333 005 0333. Alternatively, please text ADVICE to 82228.

Your home may be repossessed if you do not keep up your mortgage repayments.

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