Retirement Interest Only
What are retirement interest-only mortgages?
Introduced by the Financial Conduct Authority in March 2018, retirement interest-only mortgages are loans for older consumers.
With a retirement interest-only mortgage, an end date doesn’t have to be chosen. Instead the interest on the loan is paid each month, until the property is sold which is typically when you, or your partner dies, or when you move into long term care. At this point, the proceeds of the sale of the property are used to repay the amount you borrowed from the lender.
To qualify for retirement interest-only mortgage, you will need to demonstrate that you can afford to keep up the monthly interest payments. This means that the lender will assess whether you can afford the mortgage now and also in the future. For joint borrowers, they will need to be comfortable that the interest payments are affordable after the death of either party.
Whilst it may be possible to borrow up to 75% of the value of your property, the actual amount you can borrow will be based on how much you can afford to pay each month.
A retirement interest-only mortgage may help people to:
- Use the wealth tied up in their property. Often, people’s property is worth more than their pension and by using a mortgage to release cash, it could provide the funds people may need in their retirement.
- Gift loved ones an early inheritance and be able to see them benefit from the support. For example, by helping children or grandchildren get on to the housing ladder, or maybe help them through harder times
- Re-mortgage. For example, it could help those with an existing interest only mortgage which is coming towards the end of its term, or those on a higher interest rate.
- Use a mortgage to buy a new property.
You need to be comfortable that a retirement interest-only mortgage is the right solution for your needs. That’s why you need to take regulated financial advice.
Before you go any further, you need to consider the following points:
- Taking out a retirement interest-only mortgage may affect your tax position and entitlement to benefits, and you should seek the appropriate advice before taking out a mortgage. This could be from HMRC, the Pension Service or your own independent financial adviser.
- You should be confident that you can afford the mortgage now and into retirement. You should consider if your income could fall, or, your expenditure could go up in the future affecting your ability to repay the loan.
- If the value of your property falls below the amount you owe, you will still need to repay the outstanding capital by other means.
- You will need to disclose if other people live, or plan to live in the property, such as family members or a new spouse or civil partner; this could impact your ability to get a loan.
- Finally you should consider the fact that a retirement interest-only mortgage will reduce the value of your estate and will impact any inheritance that you leave to your estate.
If you want to know more, get in touch.
The services we provide are bespoke and our fees will vary. A typical fee for a regulated mortgage, to cover the costs of packaging and submitting your application, would be £295. Our initial assessment is free and when this is complete we will confirm in writing exactly what we will charge. Our refund policy and further details are provided in our terms of business.
Your home or property may be repossessed if you do not keep up repayments on your mortgage.