As you enter your retirement you might be considering spending a portion of every year away from the harsh British winters enjoying winter sunshine in a destination such as the Canary Islands or possibly even further afield in Florida. Retirement is a stage of your life to enjoy to the fullest and ensuring financial security will allow you to do this to the fullest. You have many options such as the interest only lifetime mortgage scheme that provides funds for your fun.
One way that you may be able to realise your dream of buying a retirement property overseas is by taking out a retirement mortgage on your existing property in the UK or even equity release scheme which would allow you to access a cash sum from the equity within your own home.
If you are seriously considering either a mortgage or an equity release scheme it is important to shop around reputable providers such as the Halifax who have a Retirement Home Plan and also Stonehaven with their interest only lifetime mortgage scheme. With hundreds of products on the market it is also a good idea to use a comparison website to do some preliminary research.
Plans differ in what they offer such as the interest only mortgage. The following is a look at the products you might find in the comparison websites. This way you can be prepared as you begin to look at the various products available to you.
• Home reversion is a scheme that is not a mortgage, but nevertheless important to mention. It allows a part of your home to be sold to a provider willing to bank on their investment. They hold the property, you live in it rent free with a tenancy agreement, and at the end you sell the remaining portion allowing your relatives to inherit that money.
• Interest Only lifetime mortgage is a mortgage with a repayment. The payment is interest for as long as you live in the home. You pay interest as it accrues so that at the end the only amount left on the mortgage to pay is the principle lump sum of money you took out for your fun retirement.
• If you do not want to make interest payments and you wish to keep your payment as low as possible then the drawdown scheme can work the best. This product ensures you gain interest only on the amount you use rather than the account balance available for you to use. Of course you have to stick with using only what is necessary or applicable rather than the whole sum or the inheritance might disappear.
• Lump sum lifetime mortgages offer you a large payment at the beginning wherein interest starts accruing immediately. This interest keeps adding up until the mortgage is paid off at the end. It is not the best in terms of inheritance, but it does give you funds to utilise.
• Ill health mortgages allow any person with a health condition like cancer, obesity, diabetes, or heart disease to take advantage of their shorter life expectancy by gaining an even larger lump sum than the traditional lifetime mortgage.
An important note to keep in mind is the age at which you can obtain some of the mortgage schemes. Most lifetime mortgages can start at 55, but home reversion requires you to be 65.
Equity release Help
Both equity release and mortgages are very serious commitments and it is advisable to get independent financial advice and forecasts before signing any contracts. You are dealing with your primary residence and in retirement it is important that you have the security of knowing you have a roof over your head. Therefore it is not advisable to enter into any contract lightly when your house is at stake.
When you have found the best option for your personal circumstances make sure you also seek proper legal advice about purchasing property overseas. Different countries have different laws about non-residence property ownership and it is a good idea to get the proper legal advice in-country and also the best insurance for owning property overseas before making any investments.
An interest only lifetime mortgage scheme probably sounds the best in order to keep your mortgage payment in the end down and inheritance for your family. Make certain to speak with your family about the situation. Additionally look for the no negative equity clause that protects you against a payment that is more than the house value if you opt for a different mortgage than interest only.
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 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.
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.
Pensioners today are facing serious challenges when it comes to just remaining afloat in the current economy, while trying to get a retirement mortgage becomes even harder. Actually, thousands of pensioners on interest only mortgages risk losing their homes as they have no means to pay at the end of the term. With options reducing rapidly, financial experts warn that the UK may soon face another mortgage crisis. But where did it all start, let’s find out.
History of Trouble
About 5 years ago, mortgage lenders were willing to offer loans to retirees. However, new rules meant to avert another financial crisis have seen mortgages for pensioners virtually disappear. Most of these retirees are well educated and well-informed people with clean credit history, but their circumstances dictate that they have to borrow for another couple of years before they can call it done.
Actually, most lenders deny people aged above 75 years mortgages for the fear of a huge bad debt time bomb. The consumer credit society reveals that about 44% of people aged above 60 have not been paying their mortgages consistently in the past 3 years, while about 7% of those aged above 55 are struggling to repay.
Hope on the Horizon for Retirees
Amidst all this pessimism, there is some hope for aging borrowers. Many baby boomers have used their finances to help their parents and children who are struggling, and this is the reason why some financial institutions are willing to lend to them. They actually understand that this generation of pensioner’s only needs a little more time to pay, and they can add the application fees to the loan, which makes it easier for them.
This idea will certainly bring in new hope into an underserved market. On the other hand, the same group of people has limited options for normal mortgages, but talking to the current lender as opposed to taking up a new mortgage may be a better option. Any borrower wishing to take up a mortgage past their normal retirement age should understand that there would be more focus on evidence of income, as opposed to a younger person. Alternatively, one may choose to downsize and pay a more affordable mortgage.
Lifetime Mortgages for Retirees
While the story is rather a bleak one with regard to retirement mortgage, there is still a bit of hope remaining. In fact with renewed hope come renewed options to the market. There are definitely products on the market that have disappeared. Yet with better regulation and understanding of the market there are also some great options that are starting to appear. Lifetime mortgages have gained a lot of notice recently and this is due to the plethora of options. A home owner that now sits with an interest only mortgage that is due could potentially roll it over into a lump sum lifetime mortgage.
The lump sum covers the existing payment needed and potentially more equity is released depending on the home evaluation. If there is money available the home owner can choose to take it out or not. The downside is that interest will accrue on the new loan, which compounds over time, but no payment is made as it is a lifetime mortgage. The principle can grow and grow until there is no equity left in the home in which case the home upon sale offers no inheritance.
Home Reversion Saves You from Mortgages
Given the worry about mortgages during retirement you do have the option of protecting yourself. You could decide that as your home is going to be sold to cover the interest only mortgage that you sell a portion of it to a provider of home reversion plans. You gain the funds you need tax free and without any repayment and interest due at the end. As the home is sold in a portion amount it means you live in the home rent free for life. This means you can die in the home or sell it when you move to a care facility. The point is you owe no money to any company. In fact upon sale of your home, the company owes you or your family the remainder of the home value in a payment. This payment is a protected inheritance that lifetime mortgages are unable to provide in most instances. To calculate your maximum release we recommend on using an equity release calculcator.
Retirement mortgage might be for you. You may find that it works perfect for your needs. If so that is great, but you also know there are other options.
There are a number of reasons which can justify a mortgage even before one attains retirement age, for example health related issues, problems with employment among others. Mortgages exceeding into the retirement period are sometimes complicated in that they are not clear about their affordability and their life spans. Lenders will in most cases reject mortgages which are likely to run beyond the age of 75, giving many willing borrowers a lot of headache. You may believe that retirement mortgage is impossible or not for you - read on and discover why it could be.
The Answer to your Needs
What potential borrowers will wish to know is how they can be allowed to borrow even at their tired ages. Again, it all depends on how affordable it is and also how the mortgage will be managed. Some factors like retirement benefits as well as other available sources of income will be considered beforehand. Lenders fear that some borrowers cannot sustain retirement mortgage due to lack of resources, so they prefer not to take any risks.
State pension can be used to facilitate a mortgage, but it depends on the overall amount contributed as insurance over the borrower’s life at work. Basic pension is however way below what is looked at because a mortgage will need to be sustained fully for the period that it runs, so other sources of income must be produced. Besides state pension, individuals having sound company pension schemes can benefit highly especially if they’ve worked at an institution for many years.
Savings can by a Mortgage
Borrowers can freely use their savings interest to facilitate retirement mortgage. It does not matter their sources of income but if there is a stable saving scheme, they can utilize it for their own good. People have developed the habit of working beyond their retirement years, which can be helpful as well in the acquisition of mortgage. Businesses operating under their names provide a good source of income too and can help out big time but they must be passed to be stable.
Using savings means that you have essentially taken money away from your retirement in order to secure a loan that may not be as good as the initial savings you had. Of course if you have a mortgage to pay off that is a different matter.
The outlook is bleak if you are heading into retirement and need a mortgage, until you discover there is an answer. The answer is called lifetime mortgage or lifetime equity release. This solution requires no monthly payment, but it does come with interest. The interest rate is fixed and compounds as an APR onto your principle loan amount. You only pay the full loan amount including interest at your death or if you decide to move from the current house. Some mortgage plans will go with you, but only if you buy a new home not if you go into a retirement home.
The solution to your retirement funding is that you have money to spend or at least you put off spending more than you can truly afford if you are cash poor, but equity rich. As you have money that you can access you simply use it to pay off your existing mortgage or have a dream holiday without worries.
When the house is sold there can even be inheritance left for the family. It depends on the lifetime mortgage you set up, but at least there is a potential for this while you get to remain in your home until you are ready to move on.
Another form of equity release is not a mortgage at all, which might satisfy your needs. Home reversion is a bit difficult to find nowadays, but it does exist. You can sell your home now in part and get a lump sum. This is tax free cash like the lifetime mortgage is. You can also use it as you see fit. The difference is the money has no interest charge and you do not pay the money back. This is an even better guarantee of inheritance as long as you do not sell the entire home while you are alive.
In simple terms, even after attaining or nearing the age of retirement, there is always a way out. Even though it may come as the last resort, equity release plans work too for individuals but they have peculiar consequences which may not be suitable for everyone. Seek a financial adviser if retirement mortgage might work for you.
Obtaining a mortgage in retirement can be very difficult based on the fact that retirees have low income that may be just enough to finance their daily costs of living but not quite enough to repay a mortgage. Many lenders find it too risky to offer mortgages to retirees, more specifically to those who are sixty-five and older.
There are however a few lenders who do offer a mortgage in retirement. However, there are a number of factors that these lenders consider before agreeing to offer a retiree a mortgage. Some of these factors include the income, the credit history, and cosigning possibilities. Many lenders will base their decision on whether or not the retiree has a fixed source of income such as from a social security or retirement plan that can be used to pay off the mortgage. Having just one source of income may not sufficient to qualify a retiree for a mortgage as that it may not be sufficient to finance his daily living expenses and to repay the mortgage which means that he will need additional sources of income if he wants to obtain a retirement mortgage.
Most lenders will want to see a credit history of reliable payments made for recent debts. This will make it much easier for the mortgage to be approved. A guarantor is someone who takes over the responsibilities of a mortgage if a retiree can no longer make the payment. Lenders are more willing to offer mortgages to retirees who have a guarantor as that the risks are reduced.
Most lenders who offer mortgages to retirees are still cautious and are still not willing to take all of the risks which is why most of them only offer mortgages to retirees who are not older than seventy or seventy-five years. Offering mortgages to older retirees is much riskier as that there is a greater chance of these retirees dying faster and not being able to repay the mortgage.
Now that the discussion on what has not been possible is explored, you can start to dream about what is possible as a retiree. You have mortgage options called lifetime mortgages. These mortgages are equity releases that allow you to take cash out of your home to make your retirement easier. Mortgage lenders have set up these special products to ensure that they are just for you and anyone else who is 55 or older. Some products might require you to be 65, but there are definitely options for anyone who is at retirement age.
The first product is a lump sum payment. It is a one time deal for gaining equity in your home. You pay compounding interest at the end of the loan term which is your life or move to a care facility. The principle and interest is due at the same time. Often life insurance will cover the payment, but if you do not have enough or your life insurance cannot be used then the home will be sold and the proceeds go to pay for the mortgage. You may or may not be able to leave an inheritance behind.
Drawdown mortgage options are similar in many respects it is just that you have an account you withdraw from, so you take a lower lump sum in the beginning and then have funds as you need them. The interest adds on to only the sum of money you actually withdraw from the account instead of the whole amount. It has a higher potential of leaving an inheritance behind.
Interest-only lifetime mortgages due require a payment like a traditional interest only mortgage. The difference is you have your life rather than just 10 years to pay the balloon payment, which is the principle balance left over after payments.
Ill health lifetime mortgages might not be something you want to think about; however, if you have a certain illness you may find more equity is available to you like a lump sum lifetime mortgage. Same rules apply, but the general consensus is the mortgage is repaid quicker than the standard lump sum. This can mean great things for you if you do have an illness.
In most cases, only equity release providers offer mortgage in retirement to retirees older than seventy-five years and this is because the repayment of the mortgage is secured in that once the retiree dies, the property will be sold to repay the mortgage. Make certain to speak with a financial adviser before you make a decision.
Retirement mortgages have turned out to be one of the most popular trends in mortgage purchases because older people are logging online to research what is the best retirement package for them. There are many reasons why a retirement mortgage looks like good option for people who are focused on property.
A retirement mortgage is essentially a mortgage taken out during retirement that a customer can opt for because of the benefits and advantages that it has. Here are some that we have highlighted below:
Inheritance tax: Getting a mortgage in retirement can help you if you want to leave your family something after you die. Retirement mortgages staunch the loss of equity that could come because of inheritance tax that your family or individuals you have named in your will could pay. A mortgage in retirement can help to take the pressure off inheritance tax which is something that many mortgage owners and their families think about. The reason why retirement mortgages stop the pressure is because on paper, they make the value of the property seem like it is worth less which means that the people you leave your home to pay less inheritance tax. This is ideal if your home is a family home that you or your loved ones do not want to sell in the near future.
Holiday homes: Retirement mortgages could allow you to raise the cash you need to get your favourite holiday home. This is something to consider if you have always wanted to be in a favourable destination that is warm whether such as Spain, Portugal or the seaside resorts of Great Britain. A remortgage of your main residence would allow you to achieve this and will be dependent upon your income levels in retirement.
Creating value for your family: Retirement mortgages allow you to create value for you and your family because it is another important part of your investment portfolio. This is because you essentially own another property or home. Think about your grandchildren or the younger members of your family. You would want them to have a good start to life and what better way for this than bricks and mortar. Your retirement mortgage will help other people in your family get a good start in life.
Obviously there are plenty of benefits in how you can use the money; however, you also have to consider how these mortgages truly work. Make a decision after you have researched the various mortgages in order to ensure a proper and well thought out decision is made.
The main worry is interest. Interest is going to accrue on any mortgage, but in retirement you might not make payments to your loan. You might opt for a non-repayment mortgage where the final and only payment for the loan is at the end of your life. In this situation the interest accrues from the time you have taken out the loan. This might leave you without any inheritance to give to your children even if the home is sold to repay the loan. The interest might accumulate to the entire value of your home.
The products are designed against this as you can only take a small percentage of your home value. The market fluctuates and devalued homes can lead to no inheritance. Often in the end the home has to be sold to repay the mortgage. This might not sit well either if you are trying to save the family home.
The money to enjoy life aside, there are ways you can make mortgages in retirement work for you. One option is a pension mortgage where you set up an interest only loan and make payments of interest. You also have a pension account that saves up funds by adding interest earned into the account. The hope is that by the end of the loan there are enough funds in the pension account to pay the mortgage off.
You can also opt for the drawdown mortgage, which provides funds as you need them from an account. These funds are ready to be withdrawn as you need them and whatever you use stays in the account. Interest only adds to the money you have used. For many this makes a simpler method of monitoring what they use and whether they can repay it.
Top tip: Use a retirement mortgage to buy an investment property that will hold its value such as a cottage or a house in the country. Click here to see all possible retirement mortgages.
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