These days many people maintain their mortgage into their 60s, 70s and even 80s! Unfortunately, there are few traditional lenders (i.e. well-known high street banks) who lend past the age of 75. Even those who do lend to this age group will need to see consistent income to offer a mortgage. Many lenders also insist on having a repayment type mortgage which can put a strain on day-to-day finances. 

This is a problem for many considering retiring or who have already retired.  

Some who wish to retire, have a traditional mortgage but are stuck needing employment to pay this mortgage. 

Many worry that they will have to sell their property and potentially downsize, despite them being settled and not wish to sell the family home. 

Or maybe you are fortunate enough to have repaid the mortgage and now wish to help your children or grandchildren financially, perhaps get on the housing ladder or buy a bigger home for their growing family? 

Read on to find out about your two fantastic solutions;

1. Retirement Interest Only (RIO) mortgage 

These mortgages do not have an end date. You can be 70 years old and live to 120 and still have this mortgage in place. 

These RIO’s work in the same way as traditional interest-only mortgages with the exception that it continues until either: 

a. You voluntarily repay the mortgage 

b. upon death and the property is sold 

or 

c.  you go into long-term care, and the property is sold. 

A benefit of this ‘later-life’ mortgage solution is that the amount you borrow will always stay the same (on the basis you make all monthly interest repayments and do not take any further advances). 

For example, a couple who are both aged 70 years old need to borrow £150,000. They can presently secure a ‘Fixed for life’ interest rate at 3.12%, and the monthly payments will be £390 per month. 

It is important to note that the rate is higher than a traditional bank, but it is fixed for life and no expiry date of the mortgage. 

You will also need to have the expendable income to cover the loan payments (pension, investment or earned income). 

You can take an RIO mortgage for any number of reasons, whether it be to repay your existing mortgage or to get the grandchildren through private school. 

High Street lenders presently do not offer these types of mortgages. 

But what if you don’t have the expendable income to have an RIO mortgage? 

2. Lifetime Mortgage (the most popular form of equity release) 

This type of mortgage used to have bad press. Only a few years ago, the cheapest rate you could achieve was 6%, meaning the loan would double in size by year 12. Many desperate retirees opted for this solution as there was no other option, and they weren’t willing to downsize. It is quite scary! 

However, competition in this market has made these products far more competitive. 

Ultimately, the most common form of this product is where you take the mortgage and allow the interest to roll-up. 

This works in the same way as an RIO (above) in that it continues until (a) death, and the property is sold or: (b) you go into long-term care. 

Be aware that this type of mortgage will reduce the value of your estate and I strongly recommend that the beneficiaries are aware – in my experience they usually are. 

I am taking the same example as the RIO above with a joint couple both aged 70 with a property worth £700,000. If you take a £150,000 loan, you will secure an interest rate of 2.87%. The benefit of interest roll-up is that you will NOT have to pay a monthly payment which suits many retirees. 

At an interest rate of 2.87%, the outstanding debt at year ten will be £199,058, which is why these loans are not suitable for everyone, but there is a place for this product. 

Many Lifetime mortgages offer a drawdown reserve facility whereby you can agree in advance a lump sum which you can slowly take at a time when needed. 

Many retirees want to spend their available equity as their children are self-sufficient and do not need the inheritance. 

Some are aware that there are inheritance tax benefits with both options as a debt against the estate comes off the IHT bill! I strongly recommend expert tax advice in this area. 

This covers both the pros and cons of Later Life borrowing. 

However, my final point is this; 

Take expert advice from an independent mortgage broker who is a ‘later life specialist’ and MUST have the Equity Release professional qualification (CeRER). 

While RIO mortgages do not need an adviser to have this qualification, Equity Release advice does need it, and your adviser must compare both options for you as there are some equity release products which allow a mix of both options and could be highly beneficial for you. 

An expert independent broker will do the following (we certainly do); 

Look at alternative options including ones which do not pay commission to the broker such as government and council grants available and pension credits (even downsizing). 

Ensure they question you thoroughly to ensure the product recommendation suits not just today but for many years to come. 

Ensure the beneficiaries, with your permission, are aware of your decisions as the value of your estate will reduce with a roll-up Lifetime mortgage option. 

Speak to you about Lasting Power of Attorney and Wills. 

Make sure any recommended product is covered under the Equity Release Council standards meaning that there cannot ever be negative equity (amongst other vital criteria). 

Consider present and future means-tested benefits you could be applicable for. 

Does not charge you a fee – why should they as they get paid from the lender! 

If you don’t have a broker or your one does not carry the necessary qualification or skills, then we adhere to the above list and would love a conversation with you. 

Happy retirement 

Simon Hughes
Managing Director