An Interest Only Mortgage is Now Available in Retirement
April 24th, 2014There is a common misconception in our society that once a person has retired they cannot borrow by way of loans or other forms of finance. Well, this is not true and one can still generate finance with the help of equity release schemes. The best option in this situation for those wanting an interest only mortgage in retirement is to research online and look for a company that can provide advice on retirement mortgages. There are an increasing numbers of plans coming on to the market now that help you in many ways to enhance your retirement.
Age is a Factor
However, there is a big issue in that most of the lenders are quite reluctant to allow the scheme to run after the age of 70-75 years. Most of the lenders demand final repayment and they expect everything to be paid until the age of 75 as they believe that there are certain risks involved if they allow it to extend beyond this age.
This is, in fact, heart breaking for all those mortgagors who believed that the lender would renew the deal and would allow them to continue with it even after the age of 75 years. Well, this is never going to happen in this day and age mainly due to FCA intervention. Actually, in the present economic climate most lenders need the cash back as they want to improve their balance sheets. If they opt for closing the mortgages of these pensioners then this will result in a huge number of people that need to find alternative accommodation, usually by downsizing.
Therefore, the best way is to shop around and see if there are any lenders out there that will provide some form of mortgage such as an interest only lifetime mortgage from the likes of Stonehaven, Hodge Lifetime and more2life.
The Companies’ Offerings
These companies are in the market to present retirement mortgage solutions whereby they offer lifetime mortgages to the over 55’s & which will run beyond the age of 75, in fact for the rest of their life. This can actually help people to pay off the original mortgage which may have the original lender pressing for repayment. At the same time as repayment of the existing mortgage the borrow could also seek a further advance, if required.
Interest only lifetime mortgages are becoming increasingly common these days. Many people are opting for this as they wish to be in control of the balance and are concerned that they wish to protect their children’s inheritance. For these reasons an interest only lifetime mortgage in retirement would be ideal for those who have good disposable income.
Well, there is some difference between the repayment mortgage and the only interest mortgage. When you talk about the repayment mortgage this means that after a specific time period the amount of repayment would be zero. However, in case of the interest mortgage, it would exactly be the same amount which you borrowed. Therefore, one must make the right decision accordingly and opt for the one which suits them best.
Lifetime mortgages are not limited to interest only. There are other types:
• Drawdown
• Lump sum
• Ill health (enhanced)
The thing that these three have in common is that you do not repay any interest on the loan until the payment is due at end of one’s life, or when a person moves out into long term residential care. Each works in its own way. First, the drawdown option allows a person to take only the money they require in stages, to be determined by the borrower. If this is to pay off a mortgage it can be the entire amount. On the other hand, if it is for lifestyle purchases or a few necessities then it is a great way to save on compounding interest as interest is only accrued on the amount actually taken.
Lump sum lifetime mortgages differ in that they provide only one payment in the amount agreed upon by the lender. Once the money is taken, the lump sum plan then doesn’t normally have the flexibility to go back for more. However, most equity release lenders will have the facility for the borrower to apply for additional borrowing. Companies such as Aviva offer this facility, but unlike drawdown plan which has no further admin fees, the lump sum will incur an application fee & possibly a valuation fee. This will be determined by how long since inception the additional borrowing is being applied for.
The ill health mortgage is a lump sum lifetime loan, but it offers an even larger payout on the assumption the life expectancy of the person is extremely limited. Due to this concept, the equity release lender will ask for a health & lifestyle questionnaire to be completed from the applicant(s). The severity of the medical history will form the basis of the amount that can be released. In simple terms the worse one’s health, the greater lump sum that will be made available.
The interest only mortgage in retirement requires a monthly payment. For individuals that do not have a means of offering a monthly payment of interest, the other lifetime mortgages can be beneficial. Comparing the different forms of lifetime mortgages is a great way to discover what works best for you and your family. Always consider consulting with independent financial experts and your family before committing to a mortgage that provides a lifetime commitment.
