06, June, 2023

Should I get a retirement mortgage?

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Should I get a retirement mortgage?
If you’re finding it hard to pay back an interest-only loan, this could be a good step for you.

A retirement mortgage can be really helpful for those who are struggling to repay an interest-only home loan that’s coming to an end or want to help children put down a deposit to buy their first house. But what is a retirement mortgage and is it the right decision for you?

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A retirement mortgage is essentially a lifetime mortgage; the amount that you borrow doesn’t have to be repaid until either you pass away, go into full-time care, or sell the property. You only have to pay the interest of the loan each month- you also have the option to stop paying the interest on the loan after the youngest borrower turns 80, or you’ve had the loan for 5 years.

So what’s the difference between a traditional mortgage and a retirement mortgage?

It’s important to note that whilst these loans do have their differences, they are similar in the regards that if you do not make your agreed monthly payments on time and in full, your house will be at risk. A retirement mortgage still carries the same risk and responsibility as a traditional mortgage in those first 5 years of making payments(or until you turn 80). There isn’t a minimum age for the retirement mortgage, but they are aimed at older borrowers, usually, those 60+ or retired.

What are the advantages of a retirement mortgage?

  • As the payments tend to be much lower than a standard mortgage, you won’t need to prove a payment plan to your lender to assure them that you can pay the mortgage back
  • It gives you a chance to save money to pass on as an inheritance rather than just leaving a house
  • Paying interest-only payments keep the interest from building up like it can with an equity release
  • Means you can avoid downsizing
  • There isn’t a fixed loan term, making the mortgage payments more flexible
  • Can often be cheaper than other lifetime mortgages
  • Often will offer fee-free overpayments after a certain point in the mortgage, meaning you can pay the mortgage off in full if you wanted to/ are in a position to without selling the house.
  • Gives you the option of unlocking the equity in your property to pay off any outstanding debt if you have it.

What are the disadvantages of a retirement mortgage?

  • Whilst you don’t need to prove a payment plan, you will have to pass affordability checks to prove to your lender you can make your interest payments each month
  • Your house will most likely be sold to repay the loan when you pass away or if you go into long-term care
  • If you fall into arrears your house may be at risk
  • The amount that you can borrow is based on your income and the loan-to-value ratio. Usually, the maximum loan amount is 40%-60% of your property value.

Retirement mortgages are becoming more popular, and because of this, there are more options opening for this kind of mortgage. In July 2018, there were only 5 interest-only mortgage products available, but by 2019 it rose by over 600%. Overall, it will entirely depend on your circumstances as to whether this sort of mortgage is best for you. If you’re considering a retirement mortgage to fund a move, consider coming to us at We Buy Any House for a free offer on your property and see if we can help.

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