How do retirement-only mortgages accumulate?

Retirement mortgages with interest only available since the FCA relaxed loan rules

A growing number of lenders have been lining up to launch a new wave of mortgage loans that allows older borrowers to obtain interest-only mortgages.

Retired borrowers can now withdraw their interest-only loan when it comes to an end, using the sale of their property as a means to repay the debt.

This can be used to increase finances, spend money to children or grandchildren, or remortgage existing debt that can not be paid.

Fundamentally, mortgages of interest only for retirement, or RIO, can offer a lifeline for the thousands of older borrowers stuck in existing interest-only mortgages that are nearing the end of their terms.

Retirement mortgages with interest only available since the FCA relaxed loan rules

Retirement mortgages with interest only available since the FCA relaxed loan rules

Offering this type of mortgages stalled several years ago after the introduction of new and strict loan regulations by the financial regulator.

The rules prevented borrowers from obtaining an interest-only mortgage if they planned to use their property to pay it when they died or went to care.

But in March, the regulator relaxed this rule, which means that lenders can now accept borrowers who want to use this payment option.

What is the difference between a single-interest retirement mortgage and a life-long mortgage?

In a mortgage only retirement interest, borrowers must still be able to pay the interest in progress, but ultimately, the loan is repaid by selling the property. This happens when the borrower dies or is considered long-term care.

A life-long mortgage, on the other hand, is a form of capital liberation. Borrowers can pay monthly interest, but generally opt for a cumulative plan that sees the interest added to the debt. That debt is finally returned when they die or move.

With the roll-up, there are no monthly payments, so it can be an option for low-income borrowers.

However, interest charges are combined over the years and can affect owners' equity significantly, leaving little to pay for care or to transfer inheritance.

Compound interest can significantly affect the equity of your home, leaving little at the end

Compound interest can significantly affect the equity of your home, leaving little at the end

Compound interest can significantly affect the equity of your home, leaving little at the end

For example, over a period of 20 years, a loan of £ 30,000 to release capital can be converted into a loan worth £ 79,447, add 10 years to that and the loan will be worth £ 129,288.

Despite the conditions, the stock market is booming: owners aged 55 and older unlocked a record £ 971 million in their homes only in the second quarter of the year.

Most stock launch loans now have a non-negative equity guarantee, which means that the borrower will never owe more than the value of their home.

This does not happen only with retirement interests, since you are paying interest as you go.

What only interest-only retirement mortgages exist?

Since the watchdog relaxed the rules on later life loans, several banks and development companies have introduced exclusive retirement products, with the biggest players like Nationwide planning to do so in the near future.

Rates are not cheap, even on discounted variable products, but they can be cheaper than your alternative capital repayments.

For example, Aldermore's offer, which was the first of its kind, has a three-year fixed rate agreement at 4 percent with a maximum of 60 percent loan-to-value with a product rate of £ 999.

Some development companies are now also offering the products at fairly competitive prices, such as the BS of Leeds with a correction of three years at 3.49 percent. Bath BS and Scottish BS offer retirement interest, only at discounted variable rates, and the Scottish product BS set at 2.09 percent variable for three years.

Specialized retirement lenders, who traditionally offer mortgages for life, are also launching products in this space. Hodge Lifetime, for example, currently offers a two-year correction of 3.59 percent, for loans of up to half a million.

It is likely that as more lenders enter this space, competition will lower rates.

All products that only receive retirement interest have an absolute minimum age of 55 years, and some lenders choose to lend only to more than 60 years.

Most have a maximum age; For example, the Aldermore term must end when the borrower is 99 years old. Some, like Tipton Building Society, have no age limit.

First name Type of mortgage Interest rate Enrollment Max LTV Maximum amount of the loan Min Age
Aldermore Fixed rate of three years 4 percent £ 999 60 percent n / A 55
Bath Building Society Discounted variable rate 4.6 percent variable £ 824 + valuation rate 50 percent £ 500,000 Sixty-five
Hodge Lifetime Fixed rate of two years 3.59 percent £ 995 60 percent £ 1 million 55
Leeds Building Society Fixed rate of three years 3.49 percent £ 999 55 percent £ 1.25 million 55
Scottish Building Society Discounted variable rate – three years 2.09 percent variable, then 5.14 percent SVR £ 799 50 percent £ 300,000 60

Are consumers definitely getting the best available offer?

One of the main concerns about retirement interest is that not all brokers who sell it can advise on the release of capital.

Mortgage advisors for life need special qualifications of capital launch, while mortgages of only retirement interest do not. Without a capital release rating, an advisor can point the borrower in the direction of other products, but can not advise on them.

Many are concerned that this may lead some borrowers in a later life to take an inappropriate product when there may be better options available.

Dave Harris, executive director of the equity lender More 2 Life, said: & # 39; & # 39; An RIO mortgage can be taken through an advisor or directly from a lender who must inform the client that "a life-long mortgage may be available and more appropriate for the client".

"However, there is little firm guidance on what should happen next if the client says" tell me more ".

"We believe that, as such commitment is, in principle, for the rest of a person's life, during which their circumstances are likely to change, specialized and independent advice is necessary."

Stuart Wilson, of Later Life Academy, which trains advisors to lend to retirees, fears that this advice gap may lead to clients not necessarily getting the best deal.

"If the advisors do not consider that the products of exclusive interest for retirement are in full harmony with the new generation of equity products, then there will be a possibility that the wrong products are sold," he said.

It is always worthwhile to shop around to make sure you are getting the best offer available, in addition to receiving independent financial advice when making such a large financial decision.

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