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Equity Review | October 18, 2017

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Retirement Mortgage

Unfortunately hitting retirement age does not mean the bills stop. If anything, the bills increase due to health concerns, more freedom to enjoy life, and your desire to take care of your children. You are left in a position of hoping your hard work has paid off enough to have a comfortable retirement. Studies conducted by UK survey companies are proving alarming because over half of the retirees or those about to enter retirement have not saved enough to cover the longer life expectancy of humans.

The situation can be made worse if retirees never got around to saving a lot in order to finish paying off their current mortgage. Elation at owning a home free and clear of any mortgage might be short lived when you realize all your cash is tied up in the house. You may not want to find another mortgage product, but you find yourself looking at possible interest only mortgage products designed for the remainder of your life.

What are Retirement Mortgages?
A retirement mortgage allows any homeowner over the age of 55 to release a capital lump sum from their property & repay only a monthly percentage of interest, while the capital sum remains unpaid until the length of term is met. Since the discussion is about retirement and thus products for retirees, this particular interest only loan is for the remainder of your life.

If you are 55 years of age you can seek help from an equity release product specialising in lifetime mortgages and home reversions. You do not pay the capital sum of the loan back until you die or move to an assisted living facility. You may also need to repay the loan if you move to a new home and are unable to transfer the mortgage along with it. Most retirement mortgage loans for retirees require you to live in the home as your main residence and needs to be in England, Wales & mainland Scotland.

How a Retirement Equity Release Mortgage Works
To take on this retirement mortgage, you need to own your home in full. It is rare, but some lenders will allow a small mortgage to be repaid with the retirement mortgage product as it is released on completion.

Your age will determine possible life expectancy. In general someone who is older has fewer years left than a younger person. Some lenders will limit the age you can be to take out this type of retirement mortgage. For example you may find it is available only to homeowners aged 55 to 70, where anyone over 70 cannot usually access this type of retirement mortgage.

It is a lump sum mortgage with special parameters. Most retirement mortgages require no repayment on the tax free lump sum, instead you repay the interest on a monthly basis back to the lender. The interest may be initially fixed for a set number of years & can then revert to a variable interest rate depending on the lender. The capital sum remains unchanged from the time you receive the funds till you repay it, as long as interest payments are made in full each month.

Property value is also used in the calculation of how much loan to value you receive. The maximum loan companies such as Hodge Lifetime will lend is 50% of the property value which at age 55 compares very favourably to the loans available on standard lifetime or interest only mortgages.

The retirement mortgage term can be set for a number of years with some mainstream mortgage lenders, or last for a lifetime with some equity release companies offering these products such as Hodge Lifetime. There is also an option in the future with the Hodge Plan at age 80 to opt to stop making monthly payments & instead allow the interest to roll-up. Obviously this is a big decision & one that should always be made in association with your equity release adviser.

Loan to Value for Retirement Mortgages
Payments are being made, which can increase the maximum lump sum given in an Interest Only mortgage. It may also keep them lower depending on the lender. A lender has to ensure that under the rules of MMR affordability is proven, both before & into retirement. Therefore, lenders such as Hodge Lifetime will request sight of pay slips, pension statements & bank statements to prove income. Additionally, to ensure repayment on the death of one party they will stress test affordability based on the income of the surviving partner. This is not something that interest only lifetime mortgages will allow; hence there is a greater decline rate with plans such as the Hodge Retirement Mortgage.

Retirement Mortgages will have a greater part to play in retirement plans of the elderly as people enter retirement with mortgages they feel they can service in the future. Therefore, ask your equity release adviser to research the whole of the mortgage market for the best retirement mortgage plans available.