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.
What is your Option as a Retiree
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.
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