Mortgages For Over 60s - What Are My Options?
Should you need to borrow a significant sum in later life, there are mortgage options available. Even in your 90s, there might still be products available to you.
Here we look at what these borrowing options are, and the features, advantages and disadvantages of each.
Equity release (lifetime mortgage)
These products are available to homeowners aged 55 and over. Essentially, with equity release you raise cash by releasing some of the equity in your home, while your right to continue living there remains unaffected.
As an example, you might release £50,000 of the equity in your home, which might be valued at £200,000. You can access the cash as a single lump sum, as a series of lump sums or as a regular income.
In many cases, equity release mortgages are taken out by borrowers whose property is unencumbered. In some cases, however, the sum released from the property will include an amount to settle an existing mortgage.
As with any other mortgage, you ultimately need to repay the amount you have borrowed, plus interest. The interest rate will be fixed and won’t change. However, with most equity release products the interest ‘rolls up’, so you won’t make any monthly repayments and instead the capital and rolled up interest will be repaid in one go when the property is sold.
This sale might not happen until the last borrower either dies or moves into a care home. (There is another, less popular option, where you would repay the interest each month, with the capital to be repaid on your death).
Equity release (home reversion scheme)
This option doesn’t create a legal mortgage. You sell a portion of your home to the lender and spend the proceeds of that sale as you wish. Although you essentially no longer own the entire property, your rights to continue living there are unaffected. Because it is not a loan, there is no interest to be repaid.
Advantages of equity release
- There is no need to make any repayments, provided you choose the roll-up repayment option
- You can continue living in your home
- There is no need to pass an affordability assessment or a rigorous credit check before being accepted
- You continue to benefit from increases in the value of your property
- The funds you access via equity release are tax free, although they would be taxed at a later point if you decided, for example, to invest them
- If you have a medical condition that could impair your life expectancy, you may qualify for lower interest rates and/or be allowed to borrow more via an ‘enhanced lifetime mortgage’
Disadvantages of equity release
- The amount you can borrow might be restricted to, say 60% of your property value
- The interest rates on equity release deals are usually higher than for standard mortgages
- An equity release mortgage must be the only charge against your home
- The most common type of equity release arrangement is called a ‘lifetime’ mortgage for a reason – you should expect it to be in place for the rest of your life. If you want to repay early, you may find that there are significant charges to be paid
- Using the ‘roll up’ method described above can result in the outstanding amount increasing significantly. On a £20,000 lifetime mortgage at 6.5%, the size of the loan over 20 years would increase to £70,473
- Entering into an equity release arrangement will reduce the size of your estate
- Equity release may affect your entitlement to certain state benefits
- If you opt for home reversion, the sale proceeds will be significantly lower than the true market value of the property
More information on releasing capital from your home in retirement »
Retirement interest only mortgages
Like equity release mortgages, these products were also specifically designed for the older borrower.
As with any interest only arrangement, you don’t repay any of the capital via regular repayments. However, unlike traditional interest only mortgages, there is no fixed term, and the capital is only repaid when you die, move out to go into care or sell the property for any other reason.
You can use these products for almost any purpose, including paying off an existing mortgage.
Advantages of retirement interest only
- You will only need to repay the interest each month, not the capital, so the mortgage should be easier to afford on the reduced income you might expect in retirement
- There is no need to demonstrate a strategy for repaying the capital
- The interest rates are usually lower than for equity release
- The interest rate is likely to remain fixed throughout the term, making budgeting easy
- You can make overpayments if you are able to – this will reduce the amount you owe on the mortgage
- You can re-mortgage to a better deal at any time, if it is in your interests to do so
Disadvantages of retirement interest only
- You will need to pass a rigorous affordability assessment and credit check in order to be accepted
- Your home is at risk if you can’t maintain the repayments
- You might only be able to borrow around 50% of your property value
Standard mortgages for over 60s
You may also be able to borrow via a standard residential mortgage – one that has a set term and where you might make repayments of capital as well as interest.
Advantages of standard mortgages
- Knowing that the mortgage has a set end date can be re-assuring, whereas equity release and retirement interest only are open-ended commitments
- Having the option of capital repayment can also be re-assuring, as this allows you to fully repay the mortgage without having to sell the property
- You can apply to re-mortgage to a better deal when it is in your interests to do so
- You may be able to borrow a larger proportion of the property value
Disadvantages of standard mortgages
- Repaying the capital and the interest can be a significant commitment on the reduced income you might receive in retirement – it might be difficult to really enjoy your retirement with such a large regular commitment
- Your home is at risk if you can’t maintain the repayments
- Your choice of lenders will be restricted. Any product that has a maximum age at the end of the term of 70 or so might not be an option whatsoever. Even if the lender allows you to borrow to age 80, you might be forced to take a shorter term than you might have wished.
Selling your home
Whilst this may not be your preferred option selling your current home to downsize to pay off an existing mortgage may be the only option uou have. If this is the case you want to get your property onto the market in plenty of time before the mortgage term is up.
Timing when you put your house on the market needs to be considered to maximise the house price you achieve. If you find a property you want to buy before you have sold then arranging short term bridging finance to help you fund this funding gap may be an option for you.
For the very best advice on mortgage options for over 60s, speak to a authorised and regulated mortgage broker who is qualified to advise on all of these options.
Call us any time to arrange a suitable time to discuss your plans: