Retirement mortgages are a disciplined approach to carry an existing mortgage, or take a new mortgage into retirement. They are typically used to repay interest only mortgages reaching the end of their term, or when taking additional borrowing to enhance your retirement, or helping family members financially.
Fixed, discounted and variable interest rates are available, as are terms that can vary from 5 years to the rest of your lifetime. You can choose how to repay your retirement mortgage, as both interest only and capital and interest options are available. This will enable you to either retain the balance of your loan (interest only), or reduce the balance over time (capital and interest).
Most retirement mortgages operate over a fixed term of years. Repayment options will either be capital and repayment, where the balance is repaid over the term selected, or interest only where the lender requires a repayment strategy to settle the loan at the end of the term.
It’s important to note though that a retirement mortgage is a residential mortgage and if you cannot make your monthly repayments, your home could be repossessed. As with all residential mortgages, you will also have to pass the lenders affordability and credit checks, to ensure that you have the means to make your monthly repayments – both now and in the future.
As with other types of later life lending, the principle criteria that will determine how much you can borrow with a retirement mortgage are your income(s), the value of your property, the age of the homeowner(s) and your UK location.
But as retirement mortgages are residential mortgages, the lender will also undertake additional income and credit checks when deciding how much they are prepared to lend you. To get a decision in principle, contact your local later life adviser.
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The FCA have no advice requirements for retirement mortgage, which is mandatory for lifetime mortgages and for the protection of consumers. It is however advisable, so that you are able to consider all your later life lending options.
Though this depends upon your age and the mortgage/plan you are considering. Your Equity Release Supermarket adviser will be able to explain this to you fully.
As you are repaying the accruing interest (and perhaps making capital repayments) each month with a retirement mortgage, the outstanding balance of your mortgage will either remain level, or reduce over time as you are making repayments of capital.
Retirement mortgages have fixed early repayments charges which are determined by the length of the fixed rate taken out. For example, on a 2-year fixed rate mortgage the likely early repayment charges (ERC's) could be a maximum 2 years. The minimum ERC's for a lifetime mortgage are currently 8 years in comparison.
If you don’t meet your monthly payments, your home may be repossessed. This cannot happen when taking a lifetime mortgage.
To qualify, lenders will conduct stress testing on affordability - both now and into retirement by requiring evidence such as P60’s, state pension and investment statements, pension projections, SA302’s, and buy-to-let rental income.
Lenders want to know that if one of you dies, then the surviving partner can continue to meet the monthly mortgage interest repayments. Hence joint borrowers must pass affordability criteria individually.
Unlike lifetime mortgages, RIOs tend to have fixed rate terms which are typically 2-5 years. Hence, when your fixed rate term expires you will have to go through the expense of remortgaging again to take a new deal.
Unlike lifetime mortgages, retirement mortgage rates are typically not fixed for life and so the interest rate you pay in the future may be more than it is now (though conversely it may be less).
These are retirement mortgages designed for the 50+ consumer, based on income, credit rating and affordability. Your home may be repossessed if you do not keep up repayments on a retirement mortgage. To understand their features, benefits and risks, please contact Equity Release Supermarket for a personalised, key facts illustration. All quotations can be tailored to your own circumstances and you are under no obligation to proceed.