With the average age of a first-time buyer rising, and more and more people taking ‘marathon’ mortgages over 30 years are more, there are likely to be millions of borrowers paying their home loan into their 60s and beyond.
But, with some lenders applying upper age limits for mortgages, it can be tough for older clients to renew their interest-only mortgage or release some of the equity in their home.
In recent years, there has been a rise in the choice of ‘retirement interest-only’ mortgages on offer. Keep reading for your complete guide to this type of mortgage, and we highlight the latest deal offered by a leading mutual lender.
What is a ‘retirement interest-only’ mortgage?
A retirement interest-only mortgage allows older borrowers to borrow against their property and to release equity from their home.
Available for both purchase or remortgage, they are typically available from age 55 and over. As the ‘interest only’ suggests you only pay the interest on the borrowing each month, not the capital that you borrow.
With most retirement interest-only mortgages, the loan is repaid when:
- You pass away
- You sell your home
- You move into residential care
In the case of a joint mortgage, redemption will typically be when both applicants reach a life event.
Some retirement interest-only mortgages do have a ‘term’ and so you have to pay the loan back after a fixed number of years or when you reach a certain age.
When might I need a retirement interest-only mortgage?
Despite some recent loosening of lender criteria, it can still be hard to be approved for a mortgage if you are in your 60s or older. However, there are lots of reasons why you might need to borrow:
- To release cash from your home to supplement your retirement income
- To buy a retirement property
- To release a lump sum to help family (for example, to gift money to your child to fund a house deposit)
In addition, many older borrowers may have existing interest-only mortgages that were taken out before the financial crisis in 2008. You may therefore want to remortgage from your existing interest-only mortgage which might be on a high interest rate such as your lender’s Standard Variable Rate.
How much can I borrow?
The amount you can borrow will be dependent on the value of your property and your income. Lenders may also have a minimum loan size.
If you want an interest-only loan, your ‘loan-to-value’ is likely to be restricted as you’re not repaying any of the capital.
The amount you can borrow will be based upon an affordability assessment. A lender will consider your income and outgoings to make sure you can keep up repayments once your only sources of income are from pensions, savings or investments, and not employment.
Leading mutual launches new ten-year retirement interest-only product
More and more lenders have been introducing retirement interest-only mortgages in recent years, and now one of the UK’s leading building societies has launched a new suite of deals.
The Nottingham has reinforced its commitment to helping older borrowers by introducing a retirement interest-only mortgage fixed at 3.95% for ten years.
The latest offering from the mutual replaces the previous seven-year fixed product and comes with a free valuation and a £995 fee.
The ten-year product has been added to a retirement interest-only range that includes shorter fixed term products with no fees, meaning borrowers can choose the right product for their circumstances.
Nikki Warren-Dean, head of intermediary sales for The Nottingham for Intermediaries, explained how the society continues to grow and reward its members with products built around them and maintains its desire to listen to, and act on, broker feedback.
She says: “We added retirement interest-only mortgages to our offering just six months ago and have already twice refreshed the range to ensure we are giving as much choice as possible for people in, or heading towards, retirement.
“The Nottingham is dedicated to helping people achieve their first property or move up the ladder, but also to supporting those who may be living in their last home too.
“Taking that into account, and broker feedback, is why we decided to introduce a ten-year fixed rate retirement interest-only product to our mortgage range – to ensure we are well positioned to help people make the right decisions to suit their circumstances.”
The Nottingham’s current range of retirement interest-only mortgages are all limited to a maximum loan-to-value of 40% and all come with a free valuation. The rates are:
- Two-year discount (2.75% off variable mortgage rate), 2.99%. No fees
- Two-year fixed, 3.40%. No fees
- Three-year fixed, 3.42%. No fees
- Five-year fixed, 3.55%. £995 fee
- Ten-year fixed, 3.95%. £995 fee