28 Jan MORTGAGES IN RETIREMENT: A GUIDE TO BORROWING FOR PEOPLE AGED 55 AND OLDER
As a nation, we are living longer and healthier lives, which means there are more things we can and want to do in our retirement. Whether it’s making a final move to a dream home and location, splashing out on some well-earned luxuries or travelling around the world, older people are more active than ever.
In response, lenders have been developing more and more solutions for mortgages in retirement. Some products are designed for homeowners to release the equity in a property they already own. Others cater to those with sufficient income in their retirement to take out a mortgage on a new or second home.
There are many reasons why people take out mortgages in retirement, and some of the most common we encounter include:
- making improvements to their home
- buying another property
- consolidating other debts with a more competitive interest rate
- paying off the capital at the end of an interest-only mortgage
- helping a loved one to buy a home of their own
- funding luxury lifestyle purchases like a car, motorhome or boat
- enjoying later life through travel and experiences
Because everyone’s financial circumstances are unique, the best way to discover the correct borrowing option for you is to speak to an experienced and independent broker. So why not book a friendly and informal chat? Call us on 01803 554455 or email us at [email protected], and we’ll get right back to you.
Meanwhile, here’s our guide for older borrowers to mortgages in retirement.
Equity Release will reduce the value of your estate and can affect your eligibility for means tested benefits
Think carefully before securing your debts against your home
Your home may be repossessed if you do not keep up repayments on your mortgage
HOW DOES BORROWING IN RETIREMENT WORK?
Mortgage lenders have two ages they look at: how old you are when you borrow, and how old you’ll be at the end of the mortgage term.
Generally speaking, if you take out a mortgage at least ten years before you’re due to retire, the amount you can borrow will be based entirely on your salary. As you get nearer to your retirement age, lenders will look at your current salary and request details of your projected pension. After retirement, your income will be based entirely on your pension.
For equity release products like Lifetime Mortgages, your income is less relevant as there is no requirement to make monthly repayments. Instead, the loan amount is based on your age and the equity in your home.
Every lender has its particular formulas, criteria and ideal borrower profile, so do get in touch to discuss the best option for you.
BUYING A PROPERTY IN RETIREMENT
If you’re looking to move to a more expensive property and the equity in your own home doesn’t cover the cost, you can still borrow well into your retirement.
There is no legal age limit on how late in life you can get a mortgage, but there are differences in the criteria of different lenders. The vast majority require a mortgage to be repaid by the time the borrower is 75 years old, although a handful have a higher age limit of 85.
Like any other mortgage, the amount you can borrow depends on the value of the property and your ability to pay. If you are retired, lenders will consider the income from your pensions and investments much like an annual salary.
The term of the loan is also a factor. If you borrow at 55, your mortgage term could still be as long as 30 years. But if you are 70, the mortgage will need to be repaid over a much shorter period, which could make the monthly repayments prohibitively expensive.
To increase the affordability of mortgages retirement, the RIO (Retirement Interest Only) mortgage was introduced in 2018. It’s specifically designed for mature borrowers who have enough income to meet monthly interest payments. The loans have no end date, and the capital sum is only repayable when you sell the property or when you enter long-term care or pass away.
Some RIO mortgages also allow you to repay some of the capital, reducing the balance of the loan over time and leaving more to pass on to your loved ones.
Income multipliers and loan-to-value limits vary from lender to lender, so please get in touch if you’d like to see how much you can borrow and from whom.
REMORTGAGING YOUR HOME IN RETIREMENT
If your home has equity and you have an income from a pension or other investments, remortgaging can help you make home improvements, fund other lifestyle purchases or even consolidate any unsecured borrowing at a more competitive rate.
Think carefully before securing your debts against your home. Your home may be repossessed if you do not keep up repayments on your mortgage.
Straightforward remortgaging will take into account:
- the value of your property
- any loans already secured on it
- any personal debt you have
- any income you receive from pensions, work and investments.
The process is very similar to taking out a mortgage on a new home, except there’s no moving involved. First, the lender will ask a surveyor to carry out a valuation. Then, after approving your loan, they take out a charge on your property and record it with the Land Registry.
If you decide to sell before the loan is repaid, your solicitor will settle the mortgage from the proceeds of the sale before sending you the remaining amount.
Lenders have different criteria for minimum property value, minimum loan amount and maximum loan-to-value ratio, so please get in touch if you’d like to know more
RELEASING THE EQUITY IN YOUR HOME
A Lifetime Mortgage is a type of equity release. It’s a loan that’s secured on your property, but has no requirement to make monthly repayments. Instead, the loan is repaid either when your property is sold or you go into long-term care.
Because Lifetime Mortgages are based on the value of your home and the equity in it, rather than your ability to pay, they can be a practical option if your income doesn’t meet the requirements for a typical repayment mortgage.
Lifetime Mortgages are available to borrowers from 55 upwards, and the percentage of equity you can release increases with your age. There’s no upper age limit on who can borrow, and you can take out a single lump sum or draw down a series of payments.
You can use a Lifetime Mortgage for almost any purpose, including:
- paying off your existing mortgage
- making home improvements
- going on a trip of a lifetime
- making a major purchase
- gifting money to a loved one
Bear in mind that interest will continue to mount until the loan is repaid. This means an equity release mortgage is not suitable for everyone, particularly when you wish to bequeath your home to a child or children.
A Lifetime Mortgage could be the answer if you want to use your home’s equity to help your children onto the property ladder now. However, it’s essential that you and your beneficiaries all understand the implications on a future inheritance.
There are many options for mortgages in retirement to help you realise your plans for enjoyment and comfort later in life. Alongside the names on the high street there are plenty of specialist lenders, so if you’re wondering about the best way forward from here, we’d love to help.
Call us on 01803 554455 or drop us a line at [email protected] for expert and friendly advice that’s tailored precisely to your specific requirements and circumstances.
Equity Release will reduce the value of your estate and can affect your eligibility for means tested benefits.