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Retirement Interest only mortgages for pensioners & older borrowers

Everything you need to know about getting an interest only mortgage when you’re retired.

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By Pete Mugleston  | Mortgage Advisor Pete has been a mortgage advisor for over 10 years, and is regularly cited in both trade and national press.

Updated: 16th June 2019* | Published: 27th February 2019

Getting a retirement interest only mortgage in the UK

We’re contacted all the time by people over 60 and looking for a mortgage.  Many think they’ve got no chance, especially if they’ve been declined for a mortgage or have bad credit.

But, thanks to a number of lenders and the expert advisors we work with, you’d be wrong.

There are now plenty of lenders offering a specific range of interest only mortgage for over 60s and interest only mortgages for over 55s.

These products, which are known as Retirement Interest Only mortgages (or RIO’s), allow retirees to remortgage existing interest-only mortgages or to release equity capital from their property.

In this guide we’ll take a look at:

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What is an Retirement Interest Only Mortgage?

Interest only mortgages are available for over 55’s and are similar to standard interest only mortgages in that you make regular payments to cover the interest, the difference is that there is no end date.

The loan is only liable for repayment once the mortgage holder dies, moves into long-term care or sells their house, with the outstanding capital debt (invariably) deducted from the proceeds of the property sale.

Are there retirement interest only mortgages for over 55s?

Yes, as long as you meet the lender’s eligibility criteria. Different lenders have different approaches to interest only mortgages for over 55s but, broadly speaking, the rates, criteria and policies are the same as for customers who wish to apply for a general retirement interest only mortgage product.

Can I get a retirement interest only mortgage at 65?

Again, it is indeed possible. Age requirements for retirement products can vary across e the lender spectrum. Some peg their minimum lending age limit lower than 65, so they’ll offer interest only mortgages to over 55s while others require applicants to be at least 60 and some won’t do business with anyone under 65.

The advisors we work with can go over all of the best interest only mortgage options for over 60s and connect you with the right lender if you make an enquiry.

Are there retirement interest only mortgages for over 70s?

Yes, there are. Maximum age limits can also differ substantially from lender to lender - some will offer interest only mortgages for over 70s but put an upper-age cap of 75 on interest only retirement mortgages, others at 80 years or 85. There are lenders however with no upper age limit on mortgage borrowing at all.

Customers should also be aware that some lenders will require borrowers to repay their mortgage loan by a certain age while the majority of others will allow it to be paid off once the holder dies.

How much can I borrow with retirement interest only mortgages?

Again, this is defined according to which lender is used. For example, there are lenders that will lend up to 50% of the value of the property at a maximum of £500,000 while others will lend up to 55% LTV with a maximum loan of £1.25 million. Some lenders will also impose a minimum property value – the lowest of which being £60,000.

Can interest only mortgages in retirement be repaid early?

Once again, this depends on the lender. For example, a number of lenders will allow borrowers to overpay interest only mortgages for pensioners by up to 10% on fixed rate mortgages each year and as much as they like on standard rate loans without penalty, although others will charge an early repayment fee for any amount over 10% of the loan.

Conversely, some building societies and the challenger banks will allow customers to overpay as much as they want without incurring fines and have no early repayment penalty.

Is there anything else I should consider?

Customers should also be aware that certain lenders will require applicants to demonstrate minimum income levels to qualify for a loan, while others will judge prospective borrowers based on their ability to maintain interest repayments.

Moreover, different lenders will offer different mortgage types (such as fixed-rate or variable products) at different interest rates.

What are the pros associated with pensioners’ interest only mortgage?

As with any loan of this type, prospective customers will need to evaluate whether an interest-only mortgage is right for their circumstances and to take some time to consider their options by referencing both the advantages and disadvantages that they offer. Let’s take a look at the pros.

  • Loan amounts remain stable so long as interest rate repayments are maintained.
  • Allows borrowers to release equity from their property.
  • Allows borrowers to make over-payments on loan amounts and reduce their debt.
  • Increase the probability of passing on inheritance amounts to children or grandchildren (especially when compared to Lifetime mortgages- see below).
  • Compound interest charges do not affect these types of mortgage.
  • Monthly payments are usually lower than for standard repayment mortgages and invariably cheaper than most Lifetime mortgages.
  • Interest only payments allow customers to minimise their outgoings and to prioritise other financial needs or considerations.
  • Removes unwanted financial pressures for those who wish to avoid downsizing. Offers flexibility for those who may wish to consider it in the future.
  • Could provide a lifeline for existing interest-only mortgage holders who have been unable to remortgage with another lender (see below).

The downsides of interest only mortgages for over 60s

  • Borrowers need to pass affordability checks or to demonstrate minimum annual income sources in order to qualify.
  • Not suitable for customers with unstable or less secure incomes or for those with property values which fail to meet minimum requirements. Moreover, some lenders will restrict the types of income they will consider for applicants.
  • The borrowers home will ultimately need to be sold in order to repay the loan.
  • Mortgage rates can be more expensive than for standard repayment mortgages.
  • Mortgage borrowers who choose a standard variable rate package could see their monthly payment rise if interest rates increase.
  • Not all brokers who advise on interest-only mortgage products are professionally qualified to advise customers on equity release options.
    This has prompted widespread concerns of a deepening ‘advice gap’ and the possibility that some customers could choose products which are unsuitable for their needs on the basis of this ‘compromised’ advice.

How do interest only mortgages impact inheritance?

As previously noted, the fact that borrowers are often allowed to overpay on their repayment schedules means that debts could be minimised or even cleared by the time the property is sold.

Alternatively, the option to release equity from a property means that homeowners who wish to help their children or grandchildren would be in a position to pass on early inheritance amounts if they wished to do so, while the absence of rolled up interest charges on loans would ultimately mean that there would be more to leave dependants than with a Lifetime mortgage.

If in doubt, however, customers should consult with their financial adviser.

Will my bad credit affect me getting an interest only mortgage for over 60s?

Because none of the three credit reference agencies used by lenders to underwrite applications (CallCredit, Equifax and Experian) hold financial information for longer than six years, customers with previously poor credit histories who have maintained payments on loans or credit cards in that period should still qualify for a RIO mortgage (assuming, of course, that they can demonstrate an ability to repay interest charges).

Obviously, however, any financial bad credit incidents incurred within those six years would probably necessitate an alternative means of finance (such as equity release options).

What if I already have an interest only mortgage?

One of the groups of people which are most likely to benefit from the introduction of these retirement interest-only products are those with existing interest-only deals, especially those that are coming to the end of their terms.

Research published by the Financial Conduct Authority, for example, revealed that there were 1.67 million outstanding interest-only mortgages (or 17.6% of all outstanding mortgage accounts) in the UK, with one in nine of these customers aged 65 or above.

The financial watchdog conceded that current EU mortgage rules (which have virtually outlawed interest-only retirement lending across the continent) had left many thousands of elderly or financially vulnerable customers with almost no means to repay these debts.

These included disqualifying pensioners from selling their homes or moved into full-time care to service outstanding loans and prohibiting customers with the up-to-date repayment records or the financial means to keep up regular monthly interest payments from pursuing this option.

Which is why the FCA decided to relax these rules from March 2018 onwards and to allow interest-only customers who are stuck with an existing interest-only mortgage to remortgage on to an interest only mortgage for pensioners with another lender. The only problem here, of course, is if these customers fail to meet income or property value requirements.

Talk to a broker who’s an expert in interest only

If you have questions and want to speak to an expert for the right advice, call Online Mortgage Advisor today on 0800 304 7880 or make an enquiry here.

Then sit back and let us do all the hard work in finding the broker with the right expertise for your circumstances.  – We don’t charge a fee and there’s absolutely no obligation or marks on your credit rating

Updated: 16th June 2019
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FCA disclaimer

*Based on our research, the content contained in this article is accurate as of most recent time of writing. Lender criteria and policies change regularly so speak to one of the advisors we work with to confirm the most accurate up to date information. The info on the site is not tailored advice to each individual reader, and as such does not constitute financial advice. All advisors working with us are fully qualified to provide mortgage advice and work only for firms who are authorised and regulated by the Financial Conduct Authority. They will offer any advice specific to you and your needs. Some types of buy to let mortgages are not regulated by the FCA. Think carefully before securing other debts against your home. As a mortgage is secured against your home, it may be repossessed if you do not keep up with repayments on your mortgage. Equity released from your home will also be secured against it.

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