A retirement mortgage is an umbrella term for financial plans that allow older borrowers to access some of the equity tied into their homes, in exchange for tax-free cash.
Over 55? Well, we’ve got news! If you think that you can’t get a mortgage, you could be wrong.
Half of Brits who take out a mortgage don’t expect to have paid it off by their 65th birthday. But could there be a better solution?
Presenting: the world of retirement mortgages, the possible solution to your financial freedom.
We’ll help you discover:
- An introduction to retirement mortgages.
- The types of retirement mortgages.
- The best retirment mortgages in Jan 2022.
Our expert journalists and researchers have spent hours delving into the retirement care industry, to bring you the latest advice and news. Let’s see what we’ve found!
Understanding Retirement Mortgages
Most upcoming retirees plan to move home after retirement. They opt to take out a mortgage before retiring, believing that once they retire, they won’t be able to get a reliable mortgage plan.
But, we’ve got news!
You don’t have to do that: there’s a variety of mortgage products that are designed for older borrowers.
The umbrella term is retirement mortgages, and it essentially refers to mortgages that you take out against the value of your residence. They can start before your retirement or while you’re in retirement.
There are a few types of retirement mortgages with different features. Furthermore, you can find options that have more flexible terms than traditional mortgages.
- You must be aged 55 or older – giving you a chance to borrow in your later years, instead of being prejudiced towards your age.
- You can live in your home for the rest of your life – while still unlocking equity.
- You’re never obligated to make loan repayments – the loan is covered, usually from the sale of your home, when you pass away or enter a long-term care facility.
- You can volunteer to opt for a later-life mortgage with interest repayments – although there are fantastic options where interest isn’t a concern.
- You will unlock the cash on your existing property – using some of the money to pay off your existing mortgage, if you have one.
- You can only have a small or no mortgage left on your estate – to qualify for a retirement mortgage.
Types of Retirement Mortgages
Although retirement mortgage is the umbrella term, there are a few different types of plans to consider. These are as follows:
- Lifetime mortgages – This is the most popular type of equity release loan. You’ll unlock the cash tied into your home, while still retaining 100% ownership of your estate. No loan or interest repayments are required, but you can find plans that give you the option of making payments if you wish. In itself, there are various types of lifetime mortgages.
- Home reversion schemes – As another type of equity release, you’ll sell all or a portion of your estate to a lender, below market value. In return, you can live in your home until you die or enter permanent care.
- Retirement interest-only mortgages – This newer addition to the world of retirement mortgages lets you only pay back the interest on your loan, with the balanced covered when you pass away or go to a care facility.
CHECK THIS OUT: Our Comprehensive Equity Release Infographic
What’s the Best Retirement Mortgage in Jan 2022?
The best retirement mortgage depends on your lifestyle and financial state. You’ll need to get in touch with a whole market financial adviser who’ll help you determine the best plan type for you and your family.
Lenders will consider:
- Your age (from 55, or in some cases, 60 or 65).
- Your income (if repayments are required).
- The amount of capital you need.
- The value of your property (it should usually be worth £70,000).
Borrowing in joint names will also significantly influence the mortgage lender’s decision. The mortgage firm will also have to stress test your future affordability. They carefully evaluate the implication of one spouse dying, and whether the survivor can continue to manage the mortgage loan on their own.
Therefore, it’s important to get independent financial advice before taking out the mortgage loan since your local mortgage adviser will look at these scenarios.
What Documentation is Required for A Retirement Mortgage?
The documents you need for a retirement mortgage will differ whether you’re employed, self-employed, or on pension. These may include your P60, bank statements, and a state pension letter.
Based on the regulators’ review of the mortgage market (MMR)3 in April 2014, it’s the plan provider’s responsibility to prove your affordability if repayments are required.
- If employed – the plan provider will need to see your P60. They’ll also need to check your state pension4 forecast, and any other occupational scheme pension forecast (to prove future income in retirement).
- If self-employed – the lender will need to check 3 years’ worth of trading accounts. You might also have to offer them proof of your SA302s5 and pension forecast.
If you’re already getting a substantial pension(s) then your mortgage provider will request to assess the following documentation:
- Your last annual Department of Work and Pensions (DWP)6 State Pension letter.
- P60s from all private and occupational pension plans.
- Your last 3 months’ bank statements, as further evidence of receipt of pension income.
Moreover, some plan providers will take your investment income and drawdown finances as an acceptable form of income and use it in determining your mortgage amount.
Who Are Retirement Mortgages For?
Retirement mortgages are designed for older British homeowners who want to take advantage of the cash tied into their property, while still living in their home until they pass away or enter long-term care.
Furthermore, you might want to consider a retirement mortgage if:
- You have an existing mortgage to settle – If your mortgage lender is pressing for an outstanding, final mortgage balance repayment.
- You want to retire in your home – Instead of downsizing or moving to a retirement village.
- You want to help your kids buy a home – If you want to offer a deposit to help your family onto the property ladder.
- You want to renovate and increase your property price – If you want to make the necessary home improvements to upgrade your kitchen or add an extension.
- You need income to supplement your retirement income – whether it’s for living expenses or to fulfil a bucket-list dream.
Interesting Read: 15 Most Common Uses of Home Equity Release
If you’re looking for retirement mortgage advice, you’ve come to the right place. With so many plans available on the market, you must ensure that you seek expert financial advice to find the right retirement mortgage to suit your needs.
Wondering how much you could stand to unlock from your home? Try our equity release calculator to find out now!