Retirement interest-only mortgage providers

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If you want to take out a mortgage in retirement or have an interest-only mortgage and you can’t repay the capital, is a retirement interest-only mortgage worth thinking about? Find out how a retirement interest-only mortgages work and who offers them.

What is a retirement interest-only mortgage?

A retirement interest-only mortgage is a mortgage that lets you pay the interest. You don’t have to make monthly payments to cover the original amount you borrowed. However, you do have to repay the capital either when the mortgage term ends or when you die.  Some mortgage lenders insist that a retirement interest-only mortgage is paid off by the time you’re a certain age. It could be as low as 80 or as high as 99. Other mortgage lenders let you pay off the mortgage when you die.

SAVVY TIP: If you pick a mortgage lender that insists you pay off the mortgage by the time you reach a certain age, make sure you think about how you’ll do that. Selling your home when you’re in your 80s or 90s isn’t something most of us would like to contemplate.

With a retirement interest-only mortgage, you should be able to make overpayments which will reduce the amount you owe. However, the amount you overpay may be limited while you’re on a fixed-rate deal. You may also be able to pay off your mortgage in full, without having to pay any penalty.  These mortgages are not the same as equity release lifetime mortgages. Lifetime mortgages are not designed to be paid off until you die or move into a care home. Also, the amount you can borrow with an equity release lifetime mortgage is not linked to your income – only to the value of your property and your age.

Who can take out a retirement interest-only mortgage?

You can take out a retirement interest-only mortgage if you’re over the age of 55. Retirement interest-only mortgages may also be called 55+ mortgages.  Confusingly, some mortgage lenders that offer equity release lifetime mortgages call them retirement mortgages. But equity release lifetime mortgages are different as they are designed to last for your lifetime or until you go into care.  You cannot generally pay these off early without incurring an early repayment penalty, although some lenders will let you pay the interest.  With equity release, the amount you can borrow is usually based solely on the value of the property, not on your own income.

SAVVY TIP: Some mortgage lenders will let you convert your retirement interest-only mortgage into an equity release lifetime mortgage if you haven’t paid it off by the time you reach a certain age.

Some mortgage lenders will let you apply for this mortgage directly with them. This means that you won’t be able to compare their retirement interest-only mortgage with another provider’s, or get advice on which provider’s mortgage is the best for you. Others only offer retirement interest-only mortgages through independent mortgage brokers or financial advisers.

WARNING! Mortgage brokers and advisers who advise on equity release mortgages have to take a special exam, says Jane King, who’s a mortgage adviser with Ash-Ridge Private Finance. However, brokers can advise on retirement interest-only mortgages without having taken the equity release exam. Jane King says this could mean someone doesn’t get the right product for them: “If someone isn’t eligible for a retirement interest-only mortgage, the adviser cannot then offer them advice on an equity release lifetime mortgage if they haven’t passed that exam.” Jane is also concerned that many mortgage advisers do not have much experience of dealing with older people and much care needs to be taken to ensure they understand what they are signing up for: “In my opinion this has not been thought through by the FCA and may well lead to mis-selling problems later.”

How much can you borrow?

The amount you can borrow varies from lender to lender. Most will have:

  • Minimum income limits. This means if your income in retirement is less than a certain amount, say, £15,000 a year, you may not qualify for a retirement interest-only mortgage. If you own your home between you, you must both be on the mortgage agreement and the minimum income limits may apply to each of you. If not, the mortgage lender will check that either of you will be able to afford the interest payments should the other person die. This could be by making sure there is life insurance in place or that the surviving partner would inherit a pension.
  • Minimum property values or equity amounts. This means that if your property is worth less than a certain amount or has less than a certain amount of equity, you won’t qualify for a retirement interest-only mortgage.
  • Upper loan limits. You may only be able to borrow up to between 30% and 60% of the property’s value if you are applying for a retirement interest-only mortgage.

SAVVY TIP: It’s worth knowing that lenders may restrict the type of income that they’ll consider. State pension payments and final salary pensions are fine, as are annuity payments. However, if you have a pension fund where you’re taking cash out as and when you need it, that may not be included as it’s not predictable or guaranteed. Some mortgage lenders may take rental income into account if you have a buy-to-let property, but not all will.

Who offers retirement interest-only mortgages?

Several banks and building societies currently offer retirement interest-only mortgages. More are likely to offer them in the future as this is a very new market. I’ve listed the retirement interest-only mortgage providers in alphabetical order:

Aldermore Bank offers a Later Life Lending Mortgage

Who can take out this mortgage? You can apply for the mortgage if you’re aged between 55 and 85. The mortgage must be paid off by the time you’re 99.

Minimum value of property: If you’re planning to sell your property to repay the mortgage, you must have at least £300,000 equity if you live in London or the South East of England and £125,000 of equity if you live elsewhere in the UK. Otherwise, the property must be worth at least £60,000. You can borrow up to 60% of the value of the property on an interest-only basis or 75% if it’s a repayment mortgage. You can take out a fixed rate mortgage for two, three, five or ten years (or there are variable rate options). The minimum loan amount is £25,000.

Minimum income level? I couldn’t find a minimum income level. However, rental income is only taken into account up until the age of 85. If you’re applying for this mortgage jointly, you have to show that either person can continue to pay the mortgage should the other die.

How to apply: This mortgage is only available via a number of mortgage brokers and financial advisers.

Bath Building Society offers a Retirement Mortgage.

Who can take out this mortgage? You have to be at least 65. There’s no upper age limit by when you must have paid off the mortgage.

Minimum value of property: The property must be worth at least £100,000. The minimum loan amount is £50,000 and the maximum is £500,000. You can borrow up to 50% of the value of your property.

Minimum income level: The household income must be at least £20,000 a year after tax. You must be able to show you have life insurance in place or that the survivor will inherit a pension so they can continue to pay the mortgage should the other partner die.

Flexibility: You can overpay as much as you want at any time. There are no early repayment charges – just a fee for closing the mortgage, which is currently £100.

Restrictions: You pay a lower interest rate if you have an ongoing financial power of attorney in place.

How to apply: You can apply direct to Bath Building Society or through a mortgage broker or financial adviser.

Hodge Lifetime offers a retirement interest-only mortgage which is branded as a 55+ mortgage  Hodge may not be a familiar name but it has been providing equity release products since the 1960s.

Who can take out this mortgage? You have to be at least 55  when you apply.

Minimum value of property: You can borrow up to 60% of the value of the property. The amount you can borrow will be based on your income in retirement.

More information: You can download a PDF document with a summary of the mortgage product.

How to apply: This mortgage is only available via a number of mortgage brokers and financial advisers.

Leeds Building Society has a retirement interest only mortgage.

Who can apply? You have to be aged between 55 and 80 when you apply. There’s no age limit for when the mortgage must be paid off by.

Minimum value of the property: You can borrow up to 55% of the value of the property. There’s no minimum amount of equity that’s required. The mortgage is repaid when you die, move into a care home or sheltered accommodation or sell your home without transferring the mortgage.

Minimum income requirements: I couldn’t find any reference to a minimum income level. However, you must be able to demonstrate how much income you get from pensions and/or renting out a second property.

How to apply: It’s available via financial advisers and mortgage brokers.

Post Office Money offers a Retirement Link mortgage, which is provided by the Bank of Ireland.

Who can take out this mortgage? The mortgage must be repaid by the time you’re 80 with an interest-only mortgage (or 90 if it’s a repayment mortgage).

Minimum value of the property: At least £250,000 plus the value of the loan. If you’re borrowing £25,000, the property must be worth at least £275,000. You can borrow up to 30% of the value of the property on an interest-only basis.

Minimum income level? You must have a minimum retirement income of £15,000. If there are two of you, you must each have an income of £15,000 in retirement.

Flexibility? While you’re on a fixed rate, you can overpay up to 10% of the amount you’ve borrowed without having to pay a penalty. If you’re on the standard rate, you can overpay as much as you’d like and there’s no penalty.

Restrictions: You can’t use the mortgage for debt consolidation or to pay care fees. You also can’t apply for this mortgage on behalf of someone you have a power of attorney for.

How to apply: You can apply direct via the Post Office, but you have to get (free) advice from one of their advisers first.

Scottish Building Society has a retirement interest-only mortgage for people aged 60 or over.

Who can take out this mortgage? You must be aged at least 60 to take out this mortgage. There is no upper age limit.

Minimum value of the property: The property must be worth at least £60,000. You can borrow between £30,000 and £300,000, and you can borrow up to 50% of the property’s value.

Minimum income level: I couldn’t find any information about the minimum income level. However, you must be able to show you can afford the mortgage. If there are two of you who own the property, you must each be able to show you can afford the mortgage.

Flexibility: If you are on a mortgage deal, you can overpay up to 10% of the value of the mortgage each year. If you’re on the standard variable rate, you can overpay as much as you want to without paying a penalty.

How to apply: Apply in a branch.

Shawbrook Bank offers a 55-plus interest-only mortgage

Who can take out this mortgage? The person with the biggest income needs to be aged between 55 and 75 when they take out the mortgage. You must repay the mortgage by your 85th birthday.

Minimum value of the property: £185,000 with at least £120,000 of equity. In London and the South East you must have at least £250,000 equity in the property.

Minimum income level? The main borrower must have income of at least £16,500 a year.

Flexibility? You can overpay on your mortgage and/or repay the balance whenever you want. There’s no penalty. The only fee you’ll have to pay is £120 (£180 in Scotland) to discharge the mortgage.

Restrictions: You can use the mortgage to consolidate up to £30,000 of debt, as long as this is the first time you’ve consolidated your debt in this way.

More information: Shawbrook Bank has a brochure that explains more about the mortgage.

How to apply: This mortgage is only available via a number of mortgage brokers and financial advisers.

Tipton & Coseley Building Society offers a retirement interest-only mortgage. You can only see information if you click on individual products. It doesn’t offer fixed rate mortgages – so here’s a link to one of its discount retirement interest-only mortgages.

Who can take out this mortgage? You must be aged 55 or over. You must have income in retirement that you can

Minimum value of the property: The minimum property value is £200,000. If you’re going to use the sale of your home to repay the mortgage, you must have at least 40% equity in it. You can get a mortgage of up to 25% of the value of the property.

Flexibility: You can repay up to 10% of the mortgage amount every year without penalty. However, if you are on a mortgage deal and pay off any more, you’ll be charged an early repayment charge.

How much can you borrow? The minimum mortgage amount is £50,000 and the maximum is £1 million. You can borrow up to 60% of the property’s value.

How to apply: You can email via the website and you’ll get called by a Tipton & Coseley Building Society mortgage adviser.

Vernon Building Society has a retirement mortgage

Who can take out this mortgage? If you will be over 75 by the time your mortgage is paid off, you may be able to apply for the mortgage.

How much can you borrow? You can borrow up to 50% of the property’s value.

Flexibility: You can overpay or repay your mortgage at any time without penalty.

Restrictions: You will be charged a lower interest rate if you have an ongoing power of attorney in place.

How to apply: Vernon Building Society says it has qualified mortgage advisers in every branch who can help with the process.

Lenders planning to offer retirement interest-only mortgages

Several lenders are planning to offer retirement interest-only mortgages, including Nationwide Building Society.

Photo by Adrianna Calvo from Pexels

Related articles:

Mortgages for over-65s – getting a mortgage if you’re an older borrower

How to find a good mortgage broker

5 things to look for if you’re thinking of taking out an equity release mortgage

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