Interest-Only Retirement Mortgages
Retirement mortgages are designed to help retired homeowners make the most of their equity, releasing capital to finance any number of expenses. This guide discusses whether an interest-only retirement mortgage works - and the advantages it may offer!
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Based on your yearly income,
you may be able to borrow
Most lenders will let you borrow 4.5 times your annual salary so, as long as you have a standard 10% deposit, you should be able to borrow this much.
Depending on your personal circumstances, some lenders may let you borrow 5 times your salary.
Lenders usually cap the amount they lend at 5.5 times your salary, so it’s unlikely you’ll be able to borrow more than this.
Interest-Only Retirement Mortgages
Retirees looking for mortgage options might assume that their choices are limited - but regardless of your age, Revolution Brokers works with a vast network of reputable lenders, offering a huge number of interest-only mortgages for UK retirees.
A retirement interest-only mortgage is an excellent way to remortgage to take advantage of competitive market rates or release capital from the equity held in your property to enjoy retirement in style.
Here we'll run through the vital information about interest-only mortgages past retirement. For more information, or to get started with an application, get in touch with Revolution Brokers on 0330 304 3040 or drop a message to [email protected].
Is a Retirement Interest-Only Mortgage Right for Me?
Most lenders offering this sort of product make it available to applicants over the age of 55. Otherwise, the requirements are similar to any other interest-only mortgage, and you pay the monthly interest charge without repaying the capital.
The big difference is that the mortgage doesn't have a term end date. When the homeowner passes away, sells the property, or moves into care, the outstanding value left on the mortgage is recouped from the sale of the house.
In some cases, a lender will ask for evidence of a minimum income to prove you can keep up with the monthly interest payments.
There are also other retirement mortgages available, all with pros and cons, including fixed-rate interest mortgages and variable rate products.
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Is There an Age Limit on Retirement Interest-Only Lending?
It depends on the lender, and most will accept applications from people aged 55 and over, with no upper limit.
The interest rates, affordability calculations, and LTV offered will depend on your circumstances, and which lender you apply to.
Some lenders will require you to have appointed a Lasting Power of Attorney (LPA), which means that your legal representative can sign documents on your behalf.
What is the Best Interest-Only Mortgage Option if I am Over 55?
The best way to find a competitive rate is to apply to a lender where you meet all of their criteria as closely as possible. Thus, it is vital to use an experienced broker who can match your mortgage needs with an appropriate lender.
Generally, provided you are over the 55 minimum age, you can borrow anything from £30,000 up to £500,000, depending on the value of your property and how much equity you own.
Are There Interest-only Mortgages for People Over 60?
There are - and some interest-only retirement mortgage lenders will use 60 as the minimum age rather than 55.
In most cases, a lender will ask for a copy of your pension statement to verify your income and to ensure you can afford the interest payments.
Some lenders might also stipulate a minimum annual pension income, such as £30,000 per annum, as a threshold.
Can I Get an Interest-Only Mortgage Over 65?
Yes, as with interest-only mortgages for over 60's, you can apply to several lenders. The best option is to contact mortgage brokers on 0330 304 3040, and we will recommend the lenders most suited to your requirements.
Do Retirement Interest-Only Mortgages Exist for Over 70s?
They do, and while some lenders will have a maximum age limit, some will set this as 80 or 85 - or have no limit at all.
If you are above 80 at the point of application, a lender will need extra approval from the underwriter, so this will often depend on the security of your pension income.
What is the Max I Can Borrow on a Retirement Mortgage?
It all depends on the value of your property and the policies of the lender.
- Some lenders will loan up to 50% of the value of the property, capped at £500,000.
- Others will loan up to 55% LTV, with a cap of £1.25 million.
- Yet more lenders will only accept applications for properties worth £60,000 or above.
Can I Pay Off my Retirement Interest-Only Mortgage?
Potentially, but it all depends on the lender's policies. Some lenders accept overpayments on interest-only mortgages up to 10% on a fixed rate product.
Other lenders permit overpayments with no maximum on a standard rate mortgage, without any early payment penalty.
Some lenders levy an early repayment charge for any overpayment made over 10% of the value of the mortgage.
In other scenarios, a lender might accept unlimited overpayments, and have no early repayment penalties, in which case you are free to pay off your mortgage early should you wish to.
What are the Advantages to a Retirement Interest-Only Mortgage?
Before committing to any borrowing secured against your home, it is vital to have a clear understanding of all the pros and cons.
Advantages of Retirement interest Only Mortgages:
- A way to release capital from your property to spend on retirement.
- Flexible overpayment terms to reduce the balance payable.
- Lower monthly payments, and cheaper than a lifetime mortgage.
- Makes it more likely that inheritance values will be passed on to beneficiaries.
- Minimises mortgage payments to control your expenses.
- No impact of compound interest.
- Often a viable option for retirees with an existing interest-only mortgage who are not able to remortgage through a mainstream lender.
- Removes financial pressures, and avoids needing to move home or downsize.
- Stable payment values and easy to budget for.
Disadvantages of Retirement Interest-Only Mortgages
There are always cons as well as pros, to be aware of before you proceed with an interest-only retirement mortgage application:
- Lenders will need proof of pension income to verify your affordability.
- Not suited to retirees with variable, or insecure income.
- Often require a minimum property value to be able to apply.
- The property will be sold to repay the capital balance at some point.
- Rates can be higher than for a typical repayment mortgage.
- If you choose a standard variable rate, interest costs may increase.
It is essential to consult an independent, whole-of-market broker before signing up to an interest-only mortgage. Many brokers are not sufficiently qualified to offer advice about ways to release equity from your home, so be wary of using an unaccredited adviser.
For professional advice about whether a retirement interest-only mortgage is the right option for you, contact Revolution on 0330 304 3040.
What Happens to My Will if I have an Interest-Only Retirement Mortgage?
It depends - if you use the equity release to raise capital from your property, and pass this on as an 'early inheritance' it can be a way of leaving money to your family earlier on in your retirement.
Many lenders allow overpayments, which means that the interest charge could be fully repaid well in advance of the property being sold, leaving no residual debt to eat into the equity.
Generally, a retirement interest-only mortgage means more of your estate is left to your beneficiaries than when taking out a lifetime mortgage since there are no loans or rolled up interest charges to consider.
Can I Get an Interest-Only Mortgage with an Adverse Credit History?
Suppose you have experienced bad credit issues over six years ago. In that case, these will not be shown in a credit reference agency report, and will usually have no impact in your mortgage application.
In some cases, even if you do have more recent credit issues, including those as severe as a CCJ, if they are isolated, and you have satisfied the debt, you can generally apply for an interest-only mortgage.
There are also alternative equity release products available, including products specifically designed for applicants with bad credit.
Can I Switch to a Retirement Interest-Only Mortgage if I already have a Pre-existing Interest-Only Mortgage?
Yes, you can - and this is one of the most common scenarios when a retirement interest-only mortgage is an attractive option.
If you already have an interest-only mortgage that is coming to an end, a retirement interest-only mortgage may be far easier to secure than a standard interest-only product.
The FCA (Financial Conduct Authority) reports that around 185,000 UK residents aged 65 or older have an outstanding interest-only mortgage, and so finding a way to manage that debt on a pension income can be a serious concern.
Retirement interest-only mortgages protect homeowners from having to sell their property to settle a standard interest-only mortgage when the term ends.
Professional Advice About Retirement Interest-Only Mortgages
It is crucial to seek independent financial advice before committing to any lending product secured against your home. A retirement interest-only mortgage can be a great way of relieving debts, and releasing equity to enjoy your retirement - but you must be aware that when the term ends, the property will be sold to repay the capital balance.
For help exploring how much you might be able to borrow, or for an impartial analysis of the borrowing options available to you, call Revolution Brokers on 0330 304 3040 or email the team to arrange a call at [email protected].
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The content included in our articles, blogs, web pages and news publications is based on information accurate at the time of writing. Note that policies and criteria can change regularly throughout the UK mortgage lending market, and it remains essential to contact the consultation team to receive up to date guidance. The information included on the Revolution Brokers site is not bespoke to any circumstances or individual application scenarios and therefore is not intended to be used as financial advice. The content we share is designed to be informative and helpful but cannot be relied upon to provide individual advice relevant to your mortgage requirements. All Revolution team members are fully qualified, trained and experienced to provide mortgage advice of an independent nature.
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