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.
Disadvantages to Retirement Mortgages
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.
Making your Retirement Situation Ideal
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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