Feel at home in retirement
UNPAID mortgage debt can cast a shadow over the happiest retirement, especially since many lenders are reluctant to offer new deals once you get beyond age 60 or 65.
Many pensioners fear they will be forced to sell their beloved family home to clear the debt, but there may be other options.
Equity release is an increasingly popular solution, as this allows you to borrow money against your home while continuing to live there, then clear the debt from your house sale when you die or go into care.
Homeowners should also consider the retirement interest-only mortgage, as the number of lenders offering this option is now increasing.
LifeLine
A retirement interest-only mortgage is similar to a standard interest-only deal, the key difference is that the loan is typically paid off after you die or go into care.
This means that you only have to demonstrate you can afford the monthly interest payments, you do not have to show you can pay down the capital as well.
Mark Harris, chief executive of mortgage broker SPF Private Clients, said this may suit interest-only borrowers who have come to the end of their deal but cannot afford to pay off the mortgage capital.
It could be a lifeline for anyone who took out an interest-only mortgage in the 80s and 90s backed by an endowment which underperformed. Harris said you need to show you have enough guaranteed income to cover the monthly interest: “Joint applications may fail if one partner would struggle on their own.”
According to Moneyfacts.co.uk there are now 12 providers offering products, mostly building societies including Ipswich and Nottingham, which both introduced their first products in the past week.
expensive
Jonathan Harris, director of mortgage broker Anderson Harris, said retirement interest-only mortgages may suit those who want to extend a mortgage term into retirement, or even those who want to release capital to help children or pay for home improvements.
He said the main drawback is that you must continue to service a loan throughout retirement from your pension and other income, which could get harder over time, especially if interest rates rise.
Shaun Church, director at mortgage brokers Private Finance, warned that retirement interestonly mortgages are more expensive: “This is surprising since the maximum loan-to-value is 55 per cent, which reduces the risk to lenders. Increased competition should drive them down over time.”
He said Leeds Building Society offers a two-year fixed rate charging 3.34 per cent, a five-year deal at 3.62 per cent, and a 10-year fix at 3.99 per cent, all with a £999 product fee.
After that you revert to the lender’s standard variable rate but this is pricier at 5.69 per cent, so your repayments could suddenly jump.
ReLeased
Will Hale, chief executive of equity release advisers Key, said that because interest rates are not fixed for the lifetime of the mortgage, you need to remortgage regularly and could struggle if rates rise sharply: “If you cannot continue to service the interest, the mortgage lender may repossess your property.”
Hale said an equity release lifetime mortgage may work better because you do not have to make any repayments while you are alive, as the interest rolls up to be repaid with the capital borrowed when you die or go into care.
Equity release interest rates are typically fixed for life: “People who take out plans now will benefit from the historically low rates.”
Equity release gives you the security of a no negative equity guarantee, so you can never owe more than the value of your property, protecting your estate. “Speak to an adviser who specialises in later life to discuss all your options,” Hale added.