Finding a mortgage for older people in or approaching retirement was a near impossibility until very recently. However, thanks to a change in the social and economic climate the situation has changed enormously. Today, it is possible to find a pensioner mortgage to suit a range of clients. So what has brought about this change? And how can we go about finding the most suitable retirement and pensioner mortgages?
With the growing situation in which retirees do not have enough cash there are a host of online websites springing up for comparison tools that make it easier to plan for your retirement. You can begin by looking at independent comparison sites to help you discover mortgages as a pensioner.
Planning Tools Add to the Search
There is a growing need for financial planning tools during retirement. There are several factors contributing to this need – cuts in public spending, rising costs of long term care, and the changing attitudes towards spending and borrowing. All these factors have contributed to a demand within the retirement sector for flexible financial products that will allow people to optimise all of their assets.
Plan Types Explored
There are different kinds of retirement and pensioner mortgages – home reversion plans and lifetime mortgages. A home reversion mortgage is a plan where the lender buys a portion of the property and recovers the proportional amount once the property is sold. Some providers of home reversion mortgage include Bridgewater, Newlife Mortgages and Hodge Lifetime and all the plans start at age 65.
A lifetime mortgage is a pensioner mortgage without a fixed term and can go on until the client dies or moves into permanent care, or if the house is sold earlier for some other reason. Lifetime mortgages can either be roll up, where the interest is added to the loan and compounded or interest only, where clients can make monthly interest repayments and keep the loan balance minimum. Some providers of lifetime mortgages include Stonehaven, More2Life, Hodge Lifetime and Leeds Building Society.
Some lifetime mortgages, such as Stonehaven’s Interest Select Plan start at the age of 55. Some may start later – such as More2Life's Interest Choice Plan and the Hodge Lifetime Flexible Drawdown Plan which both start at 60 years.
Utilising the Funds
A retirement mortgage or pensioner mortgage can be a flexible way to repay existing debts, supplement income, fund a holiday, or towards any other end. Note that these wonderful plans offer tax free cash that you can use as you wish. While you could repay debts to make retirement easier someone else might use it for that once in a lifetime holiday. How you use your cash is up to you, but always keep in mind the more money you use the less inheritance you leave behind.
Some of the lifetime mortgages will keep your family from inheriting anything because the mortgage snowballs due to interest. While your family will owe nothing in the end they might end up with nothing as it all goes to repay the mortgage. There are ways around this. The first is to take a smaller lump sum than the equity available to you. The other option is choosing a product that does not allow interest to compound or where there is no repayment like home reversion.
Home reversion still sells the home; however, you only sell a portion and it is up to you how much of the house you sell. If you do not sell the entire thing then there is going to be a little inheritance left over. The house is sold on the market and then a percentage is returned to your family for the provider purchase.
Interest only plans are another way to keep the principle balance low. You pay interest which means the balance of the actual loan never changes. As long as the house does not devalue, to the amount of the principle balance, your family will inherit a little money. This is also unlikely to happen as the percentage of the money gained is always a small percentage of the actual equity available.
The best way to find a mortgage is to understand the different types of retirement and pensioner mortgages and then compare providers within the category that seems most suitable. A mortgage during retirement is a significant thing, and can affect your life in several ways – it is therefore important to seek advice from an objective and independent financial advisor before making a final decision.
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