How Does Lending into Retirement Work
When borrowing money in retirement, there may be additional factors to take into consideration. The main thing is, are you able to make the repayments?
Your first could be changing lenders. Different financial companies will have specific policies when it comes to borrowing later in life. You may want to consider one that is flexible for your age, needs and repayment schedule.
A second option could be equity release. This allows you to take equity out of your current property to pay for what you need. The remainder of the loan is usually paid off once the property has been sold.
Another option to consider is downsizing. This doesn’t necessarily mean getting a smaller property, but also moving out of expensive areas with high council tax bands etc.
All in all, there are numerous options available for wanting to borrow money in retirement. There’s no need to panic and think once you’ve left employment that you no longer qualify. The deal-breaker for borrowing is your income.
You need to think on a basis of what you have coming in, how long you want to borrow and how you’ll ensure everything is paid off at the end of the term. As the retirement age is creeping further along as the years go by, some lenders are now increasing their lending age to 70.
This means you can be calculated from 70 onwards, with a 10-15 year repayment schedule. Due to the nature of a shorter repayment schedule, your monthly payments may be higher.
With any mortgage application, your income combined with a credit check is the ultimate decider of your success rate.
If for whatever reason, you aren’t able to apply for a typical mortgage, you may be considered for a retirement interest-only mortgage.
These will just be interest-only payments until the property is sold, you go into residential care or pass away. This provides your lender with the security that the mortgage will eventually be paid off.
Lending into retirement shouldn’t be a taboo subject, as it isn’t all that different. It requires a few more considerations, and having a good pension is certainly desirable. But don’t let it put you off.
Speaking to a financial advisor or mortgage broker about your options is always a great place to start.
All borrowing should be considered carefully the team at St Barts finance are happy to help you with understanding your options and explaining the types of borrowing that are available to you. For more information contact us at our head office and we will be happy to help.
What Income Can I Use to Pay Back My Mortgage When Retired
You may be wondering how you’re going to pay your way in later life, especially your mortgage. Being retired with a mortgage is not uncommon and there are multiple options to help guide you through this.
The simplest solution is to just use your income. Whether this is your pension or a part-time job. When discussing your repayments with a mortgage advisor, it will be discussed how you decide to make your repayments.
If your mortgage is a retirement interest-only mortgage, you will only be paying the interest on the loan and the rest will be paid if you’re taken into residential care or you pass away. In both cases, the property would be sold to pay off the remaining balance.
If you want to explore another option of repayment you may want to consider equity release. Equity release allows you to take value out of your current property in a lump sum. Any wealth you have accumulated in your current property can be withdrawn to help pay off your debts.
Again, this isn’t necessarily repaid until you pass away or are put into care. These types of products are also known as lifetime mortgages. Lifetime mortgages are where the interest is charged on an increasing sum. Because you don’t make repayments (because of equity release) the interest is added to the loan.
You won’t necessarily end up paying more than the property is worth, due to circumstances such as death and care, you are unlikely to be in this scenario.
Another option worth looking into is either remortgaging or downsizing your current property to pay your mortgage. Downsizing doesn’t have to be moving to a smaller property but moving to a more affordable area. Having fewer outgoings is an ideal start to retirement, especially if you’re still paying a mortgage.
If you’re wanting to remortgage your property, this could cut the interest you currently pay and save a substantial amount of money in the long run. An example of this could be if you have £50,000 left to pay on your mortgage, you can take out a new mortgage with lower interest rates to lessen your monthly outgoings.