Retirement mortgages are an option for individuals and couples who own their home. Often a person seeking a retirement mortgage still has an existing mortgage on their home, but has retired. With the change in situation the homeowner may require better terms for their existing mortgage. In other instances homeowners may own their home free and clear, but enter a situation of being asset rich and cash poor. Whether there is an existing loan or there is a need for cash funds, retirement mortgages can be an option that makes retirement more comfortable for the homeowner.
How Retirement Mortgage Schemes Works
Retirement mortgages require a monthly repayment of capital and interest. There are also some interest only retirement mortgages on the market such as Hodge Lifetime’s option. It is in a way a standard or traditional mortgage because there are fixed loan terms with repayment. The fixed loan terms are set based on the age of the individual. The younger the homeowner is the longer they have to repay the loan, which ensures a smaller monthly repayment than a person who is older.
The main reason for retirement mortgages is to supply homeowners with a mortgage option, where traditional lenders may not be willing to lend to someone living on a pension or other income.
Retirement mortgages due require income verification to ensure the homeowner can repay the loan. Typically, retirement mortgage providers also allow a rollover lifetime mortgage to be a part of the later life options. For example if a homeowner reaches the end of the mortgage term or is unable to repay the monthly amount they can roll over the retirement mortgage into a lifetime mortgage plan, which has no fixed term. Not all products are the same and thus with different providers the options will vary in terms of repayment or rollover possibilities.
• A loan can be taken out passed the age of retirement often up to age 85.
• Repayments allow the mortgage to be repaid over time.
• The market has several schemes available
In terms of advantages one must look at other equity release schemes available and compare. For some individuals taking out a retirement mortgage at age 65 to 85 is the right option because they need a lump sum, but have income to support the repayment. The fact that the industry offers a variety of products to fit homeowner needs is also a benefit.
With advantages come disadvantages though.
• Income Verification
Retirement mortgages require repayment, which is an option that some homeowners in retirement cannot afford. There is also a necessity to verify all income whether it is pension, investment or another type. Depending on the situation of the homeowner these ‘disadvantages’ may not be right.
A lot of retirement mortgages also come with annuity requirements meaning the homeowner repays the mortgage while also building an annuity account to pay off a lump sum amount at the end of the term. This is particularly popular with interest only retirement mortgage schemes, to ensure the end balloon payment can be made.
Require further information?
Use the form below to request further information about this, or any other scheme, and an FCA regulated independent equity release adviser will be able to assist you over the phone, face-to-face, or via email.