Later Life & Key Mortgages for Later Life Services

How Does a Lifetime Mortgage Work (The Most Popular Form of Equity Release)?

A lifetime mortgage allows homeowners over 55 to access the equity they have built up in their home. It will enable people to borrow a lump sum, or regular smaller amounts (known as ‘drawdowns’), against their property and repay it with interest when their house is sold, usually upon death or moving into long-term care. There is no age limit for these mortgages to expire and be repaid

The amount of money you can borrow depends on your age and the value of your home, though most lenders will cap the amount at between 40-50% of its total value.

Its interest rates may vary from lender to lender but are typically higher than regular mortgages due to the greater risk involved.

When taking out a lifetime mortgage, you do not need to make any monthly payments (you can choose to). Instead, the interest accumulates (compounds) and is added to what you owe until you sell your property. This means that if you live in your home for longer than expected and do not move into long-term care or pass away soon enough, the debt can rapidly increase, which will reduce the value of your estate.

It is essential to consider how a lifetime mortgage could affect your inheritance plans. Any money owed on a lifetime mortgage must be repaid using proceeds from selling your property first – leaving less money in the pot for loved ones after death.

One key benefit of most Lifetime Mortgages is that lenders have a ‘non-negative equity guarantee’. Put simply; this means that however old you get, the mortgage debt will never be higher than the value of your property.

Overall, lifetime mortgages can provide valuable financial security for those looking for additional income during retirement but are not suitable for everyone due to their complex nature and potential impact on your estate. Therefore, individuals should consult an expert independent mortgage adviser with an Equity Release qualification before making such decisions.

How Does a Retirement Interest Only (RIO) Mortgage work?

A Retirement Interest Only Mortgage (RIO) is a product designed to help older borrowers in the UK access housing finance. It allows homeowners aged 50 and over to borrow money against their property and make interest-only payments until their death or when they move into long-term care. Unlike traditional and Lifetime mortgages, RIOs do not require monthly capital repayments but only cover the monthly interest payment – a contractual requirement. The borrower’s estate repays the outstanding balance when the mortgage ends, typically by selling the property. With an RIO, there are restrictions on how much can be borrowed, usually limited to 50% of the property value. Additionally, lenders will require proof of income and assets before approving a retirement interest-only mortgage application to ensure the borrower can service the interest payments.

How Does a Home Reversion Plan Work?

Firstly, we don’t and have never advised on this type of Equity Release Product as it doesn’t seem ethical. Ultimately, this plan works in that you sell your home to a company for a massively reduced price, and you are allowed to continue living in the property until you die or enter long-term care. This entirely removes the property from your estate and is incredibly high risk. Not for us, I am afraid… sorry.
What is the primary difference between a Lifetime Mortgage and Retirement Interest Only (RIO) Mortgage?

What Is the Primary Difference Between a Lifetime Mortgage and Retirement Interest Only (RIO) Mortgage?

Contractually, with a Lifetime Mortgage, you do not need to make any monthly mortgage repayment or interest payments (as it compounds, albeit you can make overpayments with most plans). In contrast, with a RIO mortgage, the interest must be paid monthly. Therefore, a lender must ensure sufficient income to allow the borrower to service any interest payment.

Can I Still Qualify for a Later-Life Mortgage?

To qualify for a later life mortgage, borrowers must be aged 55 or over and own their home outright or have a small remaining balance on their existing mortgage. The value of the property must exceed £70,000 and should not be within a retirement village or shared ownership scheme. Lenders may also require proof of income and regular monthly payments such as pensions, benefits, or savings. Further requirements may include the borrower having no current debt problems and demonstrating that they can comfortably make repayments without jeopardising their quality of life.

Is There an Age Limit for a Later-Life Mortgage?

In the United Kingdom, there is generally an age limit for later-life mortgages. Certain exceptions can be made under specific circumstances; however, most lenders won’t offer later-life mortgages to those younger than 55. This is largely because the loan products are designed to assist individuals in their retirement years and have fewer working years left to repay a debt.

These loans come with higher interest rates than standard traditional mortgages, so lenders want to ensure that only those with fewer working years ahead take them on.

Some providers also require a minimum income level from applicants, good credit scores, and favourable debt-to-income ratios to ensure their ability to repay the loan (depending upon the later-life option). Since these mortgage products are secured by property that may eventually be sold off after death or moving into care accommodation, lenders need guaranteed repayment in case of any such eventuality, hence the minimum age requirement.

I Hear Bad Things About Equity Release Mortgage. Why?

This is understandable, as Equity Release is not for everyone. In the 1980s, there was limited regulation and coupled with high-interest rates, these products were mis-sold.

There is a market for Equity Release products. We decline many customers’ business when this is not the best option; we don’t want bad press as we work on our reputation! Before making a recommendation, we look to see if more suitable alternatives are available, whether it be government grants, family assistance, existing pension options or better-suited plans. Equity Release is when there are no options left, and we ensure we hand-hold our customers and speak with relatives who could be affected by effecting such a plan. We are highly aware those looking to effect an equity release plan could be vulnerable hence why we would take a greater degree of customer care.

Most industry complaints happen after a relative goes into a home or passes away, and the family are unaware of the effect this could have on inheritance. This is why it is strongly recommended that families are involved in the decision-making. Most family members want their relative to live a long and happy retirement and work with them to secure this. Of course, you have some whereby they insist their family are not involved as “it is none of their business”. There is a delicate balance to navigate from an ethical advice point of view!

How Can We Help with Later Life Mortgage?

These types of products need expert advice from a qualified broker. We understand when a retirement Interest Only mortgage is better than a Lifetime mortgage. We don’t charge broker fees unless the initial mortgage advance is below £60,000.

At Conran Mortgages, we will never pressure our clients to decide. We will give facts and allow you to make a considered choice. Nothing is worse when a salesperson continually presses you to buy. We will treat our customers as we would our family. If you like what we can do for you, please use us; otherwise, no hard feelings.