Retirement Mortgage Plans
It is not always easy to secure a traditional mortgage when you are either in retirement or about to retire. For many lenders, you become a risky investment given that you are no longer working or won’t be soon. That means you might have less repayment power than you would if you were still employed. You might find that your options are very limited when it comes to raising funds during your retirement.
While it might seem like you don’t have many places to turn, there is still the retirement mortgage scheme that can help you get the cash you need even after you have already retired.
Similar to a lifetime mortgage scheme, a retirement mortgage is a loan that you secure against your property. The plan starts either while you are already in retirement or just before you retire. You do make loan repayments when you take out a retirement mortgage. Those payments could be of capital and/or interest and will be determined by the terms of your product. Of course, the repayments and what they cover will have a direct impact on the full balance you owe when the loan comes due. Your terms might have you making repayments for a set number of years such as 10 or 15 or you could be making them for the rest of your life. Again, the specifics of your repayment structure will be outlined in your terms.
Retirement mortgages are not the right choice for everyone, but they can be perfect for the right subset of homeowners. For a retirement mortgage to work for you, you need to prove that your income is stable because you have to make your repayments. Other equity release plans do not require that you prove affordability, so this is a consideration to keep in mind when deciding if a retirement mortgage is a good fit.
Deciding on a retirement mortgage product will be based on several factors including how much cash you need, your age and the age of your partner if borrowing jointly, the value of your property, and your income.
Advantages of Retirement Mortgages:
- Case can be used however you’d like. Those who choose a retirement mortgage for their financial needs tend to fall into certain categories.
o Those who owe a final mortgage balance that needs to be repaid
o Those who choose to move into another area, perhaps closer to their children.
o Those who need to make expensive home improvements
o Those who want to gift cash to children or grandchildren
o Those who just want extra cash for themselves. That money could be to p[ay down existing debt, or to make a big personal purchase.
Disadvantages of Retirement Mortgages:
- There is a lot of documentation required when you apply for a retirement mortgage scheme:
- If you are employed you will need to show your P60’s, occupational scheme pension forecast and your state pension forecast. If you are self-employed, you will need to provide your pension forecast, SA302’s and multiple years’ worth of trading accounts.
- If you are already receiving your pension payments, you will need to supply different documents. You should expect to provide P60’s from all of your pension schemes, the last three months’ worth of your bank statements to prove your pension income, and the last Department of Work and Pensions (DWP) Annual State Pension letter you received.
- Regardless of your work status, you may also need to prove proof of any drawdown funds or investment income you receive. This will further document any income you have and thus, your ability to make your repayments.
- Borrowing on a joint basis can work against you in some ways. That is because not only do you need to prove current affordability but also future affordability. That means that the lender wants to see that you can maintain your repayments well into the future. If you borrow jointly, the lender will want to see that only one borrower would be able to carry the repayments. Those repayments will still be due, even after the first homeowner passes away or moves into long term care.
If a retirement mortgage sounds like it could be a good fit for you, reach out to us today to speak with one of our trusted advisers.