Acquiring a residential mortgage during retirement can be quite challenging. Most lenders don’t want to take a risk on a retiree, yet you may still want to borrow money over a longer term.
That said, there are still some options available to you. With our help and guidance, you may still be able to release equity from your home using a retirement mortgage.
What is a retirement mortgage?
A retirement mortgage is actually quite straightforward. It is just a mortgage that you take out either just before you retire or during your retirement years. The structure is just a bit different than you would find with a lifetime mortgage scheme.
How does a retirement mortgage work?
A retirement mortgage requires that you make payments over the course of the loan. Those payments may be made against the capital, interest, or a combination of the two. The payments you make will be determined by the terms you agree to in the mortgage deed. You’ll make the payments for a designated period of time. That timeframe is quite expansive. You may only pay for five years or you may pay for the full lifetime of the loan.
If you take out a retirement mortgage using a lifetime mortgage structure, the mortgage will last until the last homeowner has either moved into a long-term care facility or has passed away, just as it would with a traditional lifetime mortgage product. Upon the home’s vacancy, it will be sold, and the lender will recoup the existing loan balance.
How to choose the right retirement mortgage
There are a few options available to you when it comes to choosing a retirement mortgage. You need to first decide if this is the right overall product for you and your needs. In order to take out a retirement mortgage, you need to be able to satisfactorily prove that your income is stable and reliable, as this product will account for your individual income. During your retirement, you will also have to prove your income by proving affordability.
There are other things that can impact you getting a retirement mortgage. Take for example, whether or not you borrow as an individual or with a partner. If you borrow jointly, the lender will seek to determine if just one of the borrowers would be able to maintain payments if the other passed away. This kind of scenario is important to consider, which is why we always advise potential borrowers to see out professional guidance before making any decisions.
If you pursue a retirement mortgage, the right product for you will be based on several factors including how much money you need, your overall income, the value of your property, and your age. When you work with us at Nationwide Equity Release, we can review all influencing factors and help you determine which product is best for your needs.
Given that there are more verifications required with a retirement mortgage, you’ll need to provide more documentation than you might with a traditional lifetime mortgage scheme.
The lender now has to prove affordability. This regulation is new as of April 2014, so you can expect an in-depth review of your income before you are found eligible. If you are applying for the retirement mortgage before you’ve retired, you will need to supply the following:
– Self-employed: Typically, a full 3 years of trading accounts and possible SA302’s and pension forecast
– Employed: P60’s, any occupational scheme pension forecast to prove future income, and a state pension forecast
If you have already started receiving your pension, you are likely going to need to document the following:
– P60’s from all pension schemes
– Last 3 months’ bank statements
– Verification that you regularly receive your pension income
– Last annual state pension letter from the Department of Work and Pensions (DWP)
Other considerations by the lender when evaluating your income may include:
– Investment income
– Drawdown founds
Is a retirement mortgage the right choice for you?
If you are looking for more financial freedom in your retirement years, a retirement mortgage can be a good option. In addition, please reach out to us to discuss the possibility of accessing a retirement mortgage if you find yourself in any of the following scenarios:
– You need to make a final mortgage repayment
– You need to make necessary home repairs
– You are moving to another location to be near loved ones
– You want extra cash to help your children
– You need additional money for purchases during retirement