In our January blog we introduced you to retirement interest only mortgages. Since then they have received some attention from the online money advice services. So, what should you be thinking about when considering this type of mortgage?
To recap a retirement interest only mortgage is a mortgage that lets you pay the interest. You don’t have to make monthly payments to cover the original amount you borrowed. However, you do have to repay the capital either when the mortgage term ends or when you die. One of the reasons that people consider this type of mortgage is to release equity from their house, perhaps to help children get started on the property ladder or to consolidate other debts. There are several advantages to releasing equity in this way. The loan term is not fixed, and there is generally no need to demonstrate a suitable plan for repaying the mortgage, providing you meet certain minimum income levels, and have an appropriate amount of equity in your property. You will need to pass mortgage affordability checks, but these are often set at a lower level due to the typically lower monthly payments. One of the issues with types of equity release mortgages is that of interest roll-up. This is interest that is not paid at the end of the applicable interest period, but which is, instead, added to the outstanding principal amount of the loan. Retirement interest only mortgages avoid this problem as the interest is being paid throughout the term of the loan. Homeowners aged between 55 and 85 can apply for this type of mortgage, and while many only expect the capital sum to be repaid after your death some lenders insist on you paying off the mortgage by the time you reach a certain age, which can be between 80 and 99. You will need to know how you will do that if you opt for these lenders. The amount you borrow will depend on other likely demands on the money tied up in your home. If you are 55 now and expect this loan to continue for the remainder of your life, this could easily be 40 years, with average life expectancy now reaching the mid-eighties. Your circumstances may be very different then, care for yourself or a partner could be an issue, meaning that there could be other charges over the value of your property. Some lenders have upper loan limits for this reason.
We are all living and working for longer but securing a mortgage in your 60s and above can be a problem. However, with advent of retirement interest only mortgage lenders are increasingly taking a more considered approach when lending to older people. . Get in touch with Spot On Mortgages to discuss what options there may be for you