What are they?
A retirement interest-only mortgage is very similar to a standard interest-only mortgage, with two key differences.
- The loan is usually only paid off when you die, move into long term care or sell the house.
- You only have to prove you can afford the monthly interest repayments.
Retirement interest-only mortgages are generally aimed at older borrowers, such as the over 55s, over 60s and pensioners who might find them easier to qualify for than a typical interest-only mortgage.
In this way, they’re similar to types of equity release schemes like a lifetime mortgage, where you pay-off the original capital and possibly any interest when you die or move into long-term care.
However, with a lifetime mortgage you will either:
- have a larger amount to repay at the end because there are no monthly repayments and the interest is rolled-up and added to the total loan value, or
- make monthly interest payments and ad-hoc capital repayments during the term of the mortgage. This reduces or stops the effect of interest roll-up, but involves higher monthly repayments.
But, with a retirement interest-only mortgage, you only pay off the interest each month, so your monthly repayments will be lower.
This means you should be more likely to have something to pass on as an inheritance, or pay for long-term care.
How is it repaid?
You will be making monthly payments of the interest on the capital balance throughout the mortgage term with the capital being repaid when the house is sold, on death, or entry to long term care.
Advantages of a retirement interest-only mortgage
- No need to demonstrate a suitable plan for repaying the mortgage.
- More likely to have something to pass on as inheritance.
- No problem of interest roll-up – which is when interest builds and builds – like with equity release.
- Avoid having to downsize to a smaller property.
- The loan term is not fixed.
- Generally cheaper when compared to most Lifetime Mortgages.
- You can unlock some of the equity in your home to pay off outstanding debt.
- You will need to pass the mortgage affordability checks to prove you can afford the interest only repayments.
- Your home will be sold off to repay the loan when you die, enter long-term care or sell your home.
- Your home is at risk if you do not keep up the repayments.
- The amount you can borrow is based on your retirement income and your loan to value ratio.
Is a Retirement interest only mortgage right for you?
There is now alternative available to Lifetime Mortgages and Equity Release plans and depending your individual circumstances and requirements a Retirement interest only mortgage may be the best option.
However, it is a big decision to take out a mortgage on your home or increase the existing borrowing and all options should be fully reviewed before a decision is made.
As a specialist financial adviser David Butler is qualified to provide advice on both Equity release and Retirement Interest only mortgages and will take a holistic approach in reviewing your current circumstances and making the appropriate recommendations to achieve your goals.
David is a member of the Society of Mortgage Professionals, Dip PFS & Certs CII (MP & ER)
To arrange a free review appointment, call 01224 784030 or email firstname.lastname@example.org
Your home may be repossessed if you do not keep up repayments on your mortgage
Equity release refers to home reversion plans and lifetime mortgages. To understand the features and risks ask for a personalised illustration