Realise your retirement goals with later life lending mortgages
Later Life Lending, a generic term that means borrowing money, secured against residential property, past normal retirement age for various reasons. Normally for those age 55+ although we know of one lender who will consider 50+ applicants.
The two main processes for achieving this are Equity Release Loans and Retirement Interest only Mortgages (RIO). Whilst there are many differences between them, the two big ones are explained here: -
1) Equity Release (ER).
The amount you can borrow is based on the value and condition of your property and your age at the time of application, not your income. This applies to both main vehicles for equity release, as outlined below:-
You take a mortgage loan from a provider subject to a maximum percentage which varies based on the property value and your age at the time of applying, you retain full ownership of your home. You can, but do not have to, make monthly payments or optional overpayments and the debt is usually settled from the value of the property when you either go into care or die.
Home Reversion Schemes.
A provider buys a percentage or all your property, at less than market value. In exchange you become a tenant and have a right to remain in residence for the remainder of your life or until you go into care. You do not have to pay interest and the debt does not increase. The provider relies on the below market valuation and any increase in property value over time to cover the advance when the property is sold. The main advantage is that you know exactly how much of your home is yours and available to pass on to your beneficiaries.
Equity release will reduce the value of your estate and can affect your eligibility for means tested benefits.
Think carefully before securing debt against your home, your home may be repossessed if you do not keep up repayments on your mortgage.
2) Retirement Interest Only (RIO).
Different to traditional equity release. Here you are borrowing against the value of your property beyond your normal retirement date. The amount you can borrow is based on both the value of your property and the big difference, your income in retirement. In general, you must make monthly interest payments to the lender. As a relatively new product the RIO market is still changing and after reaching a certain age, interest roll-up may be allowed with some select lenders. The debt must be repaid at the end of term. Converting to ER is a consideration at that time, although you would need to go through another advice process.
Apart from the obvious reasons for using ER, that is releasing capital for your own purposes, there are other, not so obvious reasons where it is increasingly being considered a solution, for example:-.
The Bank of Mum & Dad or Gran and Grandad
Family’s want to help their children onto the property ladder, using ER is one way you can do so. It is difficult nowadays to save whilst renting, house prices are high, high percentage mortgage loans are not that easy to come by and building up that necessary purchase deposit, can take a very long time. Or they are living with you and you simply want to pay to get them out of your house!
The Improved, more flexible, and fairer competitive products mean later life lending is now a growing market and worth considering. Help your children or grandchildren to buy their first home. You will be surprised at what is now achievable. You were probably going to leave them the money, anyway, so why not check out what might be possible.
You can still use the products for other reasons, boosting your own retirement income, paying off your mortgage to stop that monthly outgoing, or even to buy a holiday home. Your equity, your choice, we can help with our qualified advisers.
55+ and would like to know more, contact Charles Derby Mortgage Bureau today.
Later Life Lending – The “You Need to Know” Bits.
There was a time when Equity Release products had managed to garner quite a bad reputation but as we have already said, the products have improved considerably, although awareness of this fact is still not widely appreciated. However, there are things about later life lending, in all its forms, we would bring to your attention.
Typically, they are higher than you would expect and more expensive than a traditional mortgage. The interest rate is fixed and in these low interest times you might remember much higher rates.
You will note that we have made the point about how you can now make regular interest payments with equity release so that the debt does not roll-up. This is a good benefit. For example, if you had an equity release mortgage for £200,000 at an interest rate of 4% and rolled up all the interest, the debt secured against your property will double to £400,000 in roughly 17.5 years. That might be acceptable, but it is something you should know, so you can make the right decision.
Early Repayment Charges(ERC)
Whilst ER loans can be repaid early there are redemption charges if you do, which will be expensive. How big they are in percentage, terms, varies a lot but typically they can run anywhere from 5% to 25% of the amount borrowed, depending upon how the lender sources their capital.
They also vary in how long a period they apply for, typically 8 – 15 years is quite common although some can be for the whole term. ERC’s will always be spelt out in the regulatory documentation, but again it is an important thing to know when decision making. An ER specialist adviser will always take you through this detail when they cover key facts.
Whilst the products have now improved there are still things that it is important anyone considering this route should understand and why whole of market advice is important. It is worth noting that we operate a whole of market approach and are not limited to the products of just one provider. We have equity release qualified advisers, who cover the whole of mainland UK, click here to go to our find an adviser page.
Part of the advice process will also be to identify potential alternatives before we advise Equity Release as a solution. There are a few things you may not have considered; our advisers will be able to help you with this.
If you’re keen to release equity from your property and wish to speak to our mortgage and protection advisors about your current circumstances, please do not hesitate to call a member of our team today on 0330 094 5476 , or send us a message and we’ll be back in touch as soon as possible.