How Retirement Mortgages are Calculated

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Home Mortgages For Pensioners How Retirement Mortgages Are Calculated
Pete Mugleston

Author: Pete Mugleston

Mortgage Advisor, MD

Updated: March 28, 2024

retirement mortgage calculator provides a snapshot of how much you may be able to borrow either on a mortgage or a loan secured against your home.

There are a range of pensioner mortgage calculators that each provide a different estimation which can make the process confusing, especially if you don’t have in-depth knowledge about the criteria that every lender uses to assess whether you will be approved.

If you are looking for professional advice about your retirement lending options or would like to use a retirement mortgage calculator, give us a call on 0808 189 2301 or make an enquiry and we can arrange for one of the advisors we work with to get in touch.

Our advisers are regulated by The Financial Conduct Authority and so you will be dealing with a highly trained person that adheres to strict rules of conduct.

What is a retirement mortgage calculator?

A pensioner mortgage calculator is a tool used by some lenders and retired customers who want to calculate how much their retirement mortgage may cost them or how much they can borrow through another form of a retirement loan.

These loans could include:

Because of the many varying mortgage products that are available to elderly homeowners or borrowers, it can be difficult to find a retirement mortgage calculator that is tailored for one specific retirement mortgage product.

This can make the process of trying to work out how much a mortgage will cost or how much you can borrow confusing, so many of the people we have spoken to find it simpler and more effective to talk to an advisor.

Speaking with someone who is knowledgeable about retirement mortgages as well as other retirement products such as equity release, can save a lot of time and can also help you find the best solution for you and your circumstances.

Give us a call on 0808 189 2301 or get in touch so we can arrange for one of the advisors we work with to help you.

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How to use a retirement mortgage calculator

Here is how a typical pensioner mortgage calculator can give a guide on each retirement lending option.

Retirement mortgage product Definition of product How can a calculator help
Retirement repayment mortgage This mortgage requires the borrower to repay the capital and interest together in fixed installments over a predetermined period Calculates the amount of loan you can borrow based on your income, the length of the mortgage term and interest rate
Equity Release Equity Releases is a type of loan that is secured against your home. The amount you can borrow depends on a number of factors, including how much equity you own in your property Shows the impact that smaller withdrawals can have on the total interest charged on the loan, compared with a single lump sum withdrawal
Hybrid Equity Release You need to pay some or all of the interest of the loan monthly, but you have the freedom to stop paying whenever you like and just add the interest onto your loan which is paid off when you die or your move into residential care Demonstrates the overall cost of the loan if you make regular interest payments versus none being paid
Retirement interest-only mortgage A retirement interest-only mortgage is similar to a standard interest-only mortgage but the loan is usually only paid off when you die or move into long term care or sell the house Show the cost of the loan and how much interest you can expect to pay based on how much equity you would like to release

The above table provides an overview of how different types of retirement mortgage calculator work, but you should keep in mind that some lenders use more sophisticated calculators than others.

Some produce figures based on basic data like your income and the term length, while others factor in variables such as your credit rating.

This is why results can vary across the board, but if you make an enquiry, the advisors we work with can introduce you to the lender whose retirement mortgage calculator is most likely to return favourable results for a borrower with your needs and circumstances.

How will a retirement mortgage lender calculate the amount I can borrow

If you are applying for a repayment mortgage, your lender will want to be confident that your loan is affordable to you based on your income during retirement.

Loans are generally capped at 4-4.5x income, although some lenders may consider loaning 5x your income or more, in the right circumstances.

Income to loan ratio example for a borrower with an annual income of £20,000

Income Multiples Loan Amount
4x £80,000
5x £100,000
6x £120,000

You may find that as a retired borrower, some lenders will only be willing to provide a lower LTV (loan to value) of 50%.

This is because you are no longer working and might only receive a pension as your income.

Therefore lenders perceive this as a higher risk that you won’t be able to keep up with your mortgage payments.

That’s not to say getting a mortgage into retirement is impossible though. There are specialist retirement lenders who may be happy to provide you with a mortgage, depending on your circumstances.

If you’d like to know more about which retirement lenders are more likely to approve your mortgage applicationget in touch with us.

Do mortgage calculators factor in age limits?

Yes. Most online mortgage calculators will be set with the standard mortgage of a repayment mortgage which is usually 25 years.

However, lenders tend to offer a shorter term on their mortgage periods for a pensioner because, for example, someone who takes a loan out at the age of 75, may not be alive at the end of a 25 year mortgage agreement to pay it back.

Therefore, the older you are, the more difficult it may be to find a lender who is willing to provide you with a mortgage.

Age of borrower Lender stance
55-65 Most will consider
65-75 Some will consider
75+ Few will consider

You should also keep in mind that there are specialist lenders who will consider applicants up to the age of 85, and a minority with no upper age limits, as long as they’re confident the borrower can repay the mortgage. Make an enquiry and the advisors we work with will help you find them.

Age limits for loans secured against your property

Although the minimum age for loans like equity release is often 55, older applicants may find that with some lenders, they are able to unlock more capital compared to younger borrowers.

This is because most lenders are willing to increase the LTV (loan to value) for older homeowners as they are perceived to have a shorter life expectancy.

Some lenders can be more cautious about releasing large amounts of equity to younger borrowers, who are say 55, because that borrower is still relatively young and could potentially need to draw on their equity in the future for other retirement costs such as long-term care.

An exception to this is that for any cases where health issues are a factor, a doctor’s report can be sent to the lender to provide evidence of the illness or condition.

This is because some lenders may be willing to increase the LTV for homeowners with serious health issues as they are perceived to have a shorter life expectancy.

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Mortgages calculators for pensioners with bad credit

You may find that mortgage calculators for retired borrowers don’t take into account affordability factors such as bad credit.

This can be frustrating and often misleading as some lenders have strict criteria on lending to customers with a less than perfect credit score.

If you have bad credit this could include:

  • Low credit score
  • Late payments
  • Mortgage arrears
  • Defaults
  • CCJs
  • Debt management plans
  • IVA
  • Bankruptcy
  • Repossession

There are some lenders who are more likely to accept some forms of bad credit, depending on the date and severity of the credit.

This is another factor that can cause confusion amongst borrowers as it can be difficult to know how this will affect your mortgage application.

If you’re concerned about your credit history, get in touch and we can arrange for a specialist to discuss this situation with you directly and help you find a lender who may be able to help.

Speak to an expert

Many homeowners use retirement mortgage calculators to get a better understanding of how much they can borrow but these tools won’t be able to give you an exact figure as every lender uses different criteria to calculate how much they are willing to lend.

That’s why a retirement mortgage broker’s advice is invaluable.

They’ll be able to give you the most accurate and useful advice based on your circumstances.

If you have any questions and want to speak to an expert, call 0808 189 2301 or make an enquiry.

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About the author

Pete, an expert in all things mortgages, cut his teeth right in the middle of the credit crunch. With plenty of people needing help and few mortgage providers lending, Pete found great success in going the extra mile to find mortgages for people whom many others considered lost causes. The experience he gained, coupled with his love of helping people reach their goals, led him to establish Online Mortgage Advisor, with one clear vision – to help as many customers as possible get the right advice, regardless of need or background.

Pete’s presence in the industry as the ‘go-to’ for specialist finance continues to grow, and he is regularly cited in and writes for both local and national press, as well as trade publications, with a regular column in Mortgage Introducer and being the exclusive mortgage expert for LOVEMoney. Pete also writes for Online Mortgage Advisor of course!

Read more about Pete

Pete Mugleston

Mortgage Advisor, MD

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