There are many options available to you in later life if you require a mortgage. In todays blog we look at some of the common reasons why people use mortgages later in life and discuss the options available.
If you are over 55 there are actually more mortgage products available to you than anyone else. Usually, high street banks only allow a mortgage to last until your retirement or age 70 at the latest, which if you are approaching that age can make repaying the mortgage expensive. However, in recent times lenders have begun to realise that many people are choosing to work past the age of 70 or they have a business that can continue to generate an income later in life with minimal input from them. This has encouraged some lenders to take a common-sense view on income past age 70. More and more lenders are lending until age 75 and some even 80 and beyond. In recent years there has also been the advent of Retirement Interest Only mortgages, designed so that if your retirement income is enough to cover the interest payments you can continue that mortgage for the rest of your life. If your income or retirement income is more complex to prove or isn’t enough for the lender to be comfortable that you can afford payments then you also have the option of a Lifetime mortgage. With this type of mortgage, no payments are expected but you can make them. The ball is firmly in your court as to if our when you would like to make the payment and how much you would like to pay as long as it is no more than 10% of the amount borrowed in any year.
Common uses are to repay an interest only mortgage that is coming to an end, repay other debts or toto complete improvements to the home or gifting to children or grandchildren but you can also use these mortgages to provide an income to help fund a better lifestyle or pay for someone to care for you or your loved ones.
There are some common reasons why people later in life are looking for mortgages. Perhaps they took an interest only mortgage previously and at the time intended to sell the property in order to repay the debt but now no longer wish to. Or perhaps things have changed for them in their lives, and they need to sell or mortgage the family home in order to afford a property elsewhere. Other borrowing reasons may to help the younger generation on the property ladder or help with their mortgage as things start to tighten up, or it could be for something aspirational or because they are struggling to make ends meet. There are even options to agree an extra income for a period of time or even paying for a loved one’s care.
Whatever the reason the money is borrowed from your property tax-free which can be an advantage to using other funds such as investments or pensions.
Let’s have a look at the options in a bit more depth:
Mainstream mortgages until 80 and beyond
As I said previously more lenders are starting to consider lending later in life. They offer standard repayment options and interest only although Interest only options are harder to obtain than historically with lenders wanting to make sure that it will be possible for you to downsize to a suitable property at the end of the mortgage. All of these mortgages are based on affordability- the difference between what income you have coming in against your monthly expenditure. If you are approaching your chosen retirement age, then they may base lending on your retirement income rather than your current income. These mortgages have a fixed end to them known as a term. There are a range of fixed and variable rates for varying lengths up to 10 years, after which point you could remortgage to another lender or potentially obtain a new rate from the current lender.
Retirement Interest Only Mortgages
These are a relatively new type of mortgage are based on retirement income and are an interest only option for the rest of your life. The borrowing is calculated by using the lowest income holder in the household in a worse case scenario. For example if there are 2 of you and one has the greatest pension income, with only 50% of some of the pensions passing the other in death, then they would calculate that surviving parties remaining income to use for affordability. They are available to borrow up to 75% of the value of the property and come in fixed or discounted interest rates of 2, 3 or 5 years with one lender giving a fixed rate for life. Interest payments are mandated, and your home would be at risk if you were not able to keep up those payments.
With lifetime mortgages no monthly payments are expected therefore your application is not stressed for the ability to make payments, however you are able to make them. The application is based on life expectancy and the value of the property. The money only has to be repaid when the last surviving party dies or enters long term care. Interest rates are generally fixed for life with many options to repay the entirety of the mortgage without penalty after 5 years. As all mortgages you retain full ownership of the property, are able to move home and port the mortgage to another property and repay up to 10% of the amount borrowed in any calendar year. Unlike the other mortgages mentioned your home is not at risk if you do not make or keep up payments, but this may erode the equity left to pass on to the next generation.
At Jones & Young we are here to help you navigate your options and ensure you get the correct mortgage for the money you require at the lowest possible cost, feel free to get in touch and we can look at which option would be best for your circumstances.