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What types of retirement interest-only mortgage are there?
There are broadly two main types; one being a retirement mortgage and the other being an interest roll-up lifetime mortgage.
For both types, your loan term isn't fixed; it goes on until you die or move permanently into long-term care.
| Retirement Mortgage | Interest roll-up lifetime mortgage | |
| How is loan paid back? | Capital is repaid from sale of your home |
Capital and interest is 'rolled up' and repaid from sale of your home |
| Monthly Interest Repayments? | You have to make all your monthly interest repayments. Some lenders specify that after a certain time (or age you reach) you can choose to roll up the interest (i.e. no longer have to make monthly repayments) |
None |
| Is your home at risk? | Yes, if you don't make your monthly interest repayments |
No; you are effectively a protected tenant until you die or move permanently into care |
| How much can you borrow? | Sum is based on your retirement income and expenditure up to a specified maximum loan to value ratio |
Sum is based on a loan to value ration determined by your age |
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How do retirement interest-only mortgages compare with traditional residential mortgages?
With traditional residential mortgages:
- Your loan term is fixed
- If you have an existing interest-only mortgage, you'd have been expected to set up a separate repayment vehicle to repay the capital
- You have to make all required monthly repayments until the mortgage term ends, otherwise your home is at risk
- Your maximum loan sum is based on your employment income and expenditure up to a maximum loan to value ratio
For both retirement mortgages and traditional mortgages, your home is at risk if you don't keep up repayments, although the repayment figures are calculated differently.
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What's the best way to find out which retirement interest-only mortgage is right for your needs?
At press time, retirement interest-only mortgage products were relatively new, with some significant lenders yet to launch their versions.
The new products are set to add to the more than 3,000 mortgage products presently on the market and as such are relatively untried.
It therefore is well worth considering using the services of an independent mortgage broker to help you choose which one best suits your needs.
Bear in mind the number of pensions presently on the market also; you need to choose a product which is in line with things like your retirement age and the individual stipulations of your pensions/s and what your sources of income might be after you take retirement.
As with all mortgage products, there are many trade-offs also. An interest roll-up lifetime mortgage-type product leaves you not having to make monthly repayments and means therefore that you can't be evicted under normal circumstances. The flip side, however, is that interest rates are higher and there might be considerably less capital remaining to put towards your care (or to leave to your descendants) when your house is sold.
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