Retirement Interest Only Mortgage vs Equity Release

Retirement Interest Only Mortgage vs Equity Release

Retirement Interest Only Mortgage vs Equity Release or lifetime mortgages, so whats is the difference ?  Well  simply put   Retirement interest only mortgages, work on a similar basis to normal interest only mortgages.

ie That the person can prove from their retirement income and pensions, that they can afford to make the monthly mortgage payments on an interest only basis.

whereas  Equity Release  doesn’t take the ability to pay the monthly interest into account.

As interest can be rolled up and repaid upon the eventual sale of the property, or in many cases an optional voluntary payment can be made to keep the amount of rolled up interest down

 

Retirement Interest Only Mortgage vs Equity Release

Both of these products are designed to try and combat the FCA fears that there are about 1 million uk households on interest only mortgage deals.

These deals are all due to expire in the next 5 years and many people simply haven’t put in place plans to repay the mortgage when it comes to an end.

 

Retirement Interest Only Mortgage vs Equity Release

Retirement interest only mortgages can work very well for example :

an 65 year old architect’s mortgage come to an end with him owing £350,000  on a £800,000  property.

He might not be able to raise enough via a standard residential mortgage as the lender would look at it and say ok we will lend to age 75.

– but that is  just ten years to repay £350,000  – its unlikely to be able to afford the  monthly payments as £35,000 capital per year means a mortgage payment of over £3,000 a month .

Equally Equity release at that time might also not be possible as lenders typically lend 30%  which would be about £240k.

Which isnt enough to cover the £350,000  outstanding  so   …….  an alternative might be to take a retirement interest only mortgage,.

– proving you can pay the £400 pcm  of interest charges  and perhaps even overpaying it a bit to bring the balance down by £50k  over 5 years,  …..

 

so Now the architect gets to age 70.  and wants to retire and owes £300,000  on a property now worth £900k

and he can now move it onto an Equity release as they will lend 30%  of the £900k  = £300k  which is what he now owes.

The architect can carry on living in his own home as long as he wishes

 

Retirement Interest Only Mortgage vs Equity Release

Its best to get advice in this area as lenders have complex calculations they will apply.  A suitably qualified mortgage advisor can help you get the right deal and explain them to you in more details

Retirement Interest Only Mortgage vs Equity Release