If you are reaching retirement, or are already retired, you may know that borrowing with residential mortgage lenders can be difficult. The reluctance of traditional lenders to provide mortgages to those in their later years has significantly impacted those wanting to borrow over the long-term and those wishing to raise funds in retirement.
Nevertheless, solutions do exist. With good research provided by an experienced equity release adviser, we could help you find solutions to releasing equity from your property by using a retirement mortgage.
How do retirement mortgages work?
In short, retirement mortgages are essentially a loan secured against your property that commences either prior to your retirement, or whilst in retirement.
During the mortgage term, you will need to make repayments of capital and/or interest in accordance with the terms of the mortgage deed, and this will affect your balance accordingly. This could be for a fixed term e.g. 10 or 15 years, or even over your lifetime.
Retirement mortgages arranged under a lifetime mortgage structure will continue until the last person has died or moved into permanent care. At that point, the house would normally be sold, with the remaining proceeds passing to your estate.
Which is the best retirement mortgage?
Whether a retirement mortgage is right for you will depend on your lifestyle and financial situation. Retirement mortgages will take your individual income into account, which you must prove is stable and verified. If you are taking borrowing into your retirement, you will also need to provide evidence of your income through retirement to prove affordability.
Borrowing in joint names also can influence the lenders decision. Future affordability is usually stress tested by the lender. They assess the implication of one partner dying and whether the survivor can continue to pay the mortgage on their own. These scenarios will be raised by your local adviser and is one of the many reasons why independent financial advice is so important.
The decision as to which is the best retirement mortgage should be based on how much capital you initially require, your age, income and the value of your property. By using Equity Release Supermarket’s experienced retirement mortgage advisers, we can ascertain which mortgage lending solution would be most suitable for your circumstances.
What documentation is needed for a retirement mortgage?
Following the regulators review of the mortgage market (MMR) in April 2014, it is now the lender's responsibility to prove affordability, hence vigilant checks will be made. In such situations prior to retirement, lenders will usually request proof of the following:
- If employed – P60's will be required, as well as a state pension forecast, and any occupational scheme pension forecast (to prove future income in retirement).
- If self-employed – Usually three years’ worth of trading accounts will be required. You may also need to provide SA302's and pension forecast.
If you are already receiving a pension(s) then lenders may request the following documentation:
- Your last annual Department of Work and Pensions (DWP) State Pension letter.
- P60's from all private and occupational pension schemes.
- Your last three months’ bank statements, as further evidence of receipt of pension income.
In addition, some lenders can take investment income and drawdown funds as acceptable form of income and use in your mortgage lending calculation.
Who are retirement mortgages for?
Whether you need money for home improvements or to help your children onto the property ladder, financial freedom is imperative in your later years.
It’s for this reason that alternative means of capital raising via retirement mortgages are now being offered to those who need it most. You may need a retirement mortgage if you find yourself in any of the following situations:
- Lenders are pressing for an outstanding, final mortgage balance repayment.
- You are moving into a bungalow, retirement development, or nearer to the children for support.
- You want to provide a deposit to help your children onto the property ladder.
- Home improvements are needed to upgrade your house.
- You need money for things like a new car, holiday or any of the creature comforts that retirement deserves.
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These are retirement mortgages designed for the 55+ consumer, based on income, credit rating and affordability. Your home may be repossessed if you do not keep up repayments on a retirement mortgage. To understand their features, benefits and risks, please contact Equity Release Supermarket for a personalised, key facts illustration. All quotations can be tailored to your own circumstances and you are under no obligation to proceed.