Attempting to secure a traditional mortgage during your retirement years, or just before you retire, can be particularly challenging. You just don’t have the same income you once did, and traditional lenders hesitate to let you borrow. It might feel like you don’t have anywhere to turn but that isn’t actually the case. A retirement mortgage product could be just what you need. It can help you to borrow over a longer time period and it can help you raise funds while you are already retired.
How Does a Retirement Mortgage Function?
In very basic terms, a retirement mortgage functions just as it sounds. It is a mortgage that you secure against your property either right before you retire or while you are already in retirement. Unlike some other options you can use during your retirement, with this type of product, you have to make payments against your loan in accordance with your product’s terms. That means you could be required to make payments of capital and/or interest, depending on your particular mortgage. Of course, what you pay, whether capital, interest or a combination of the two, will have a huge impact on your overall balance. You could make the payments against your loan either for a designated number of years or for the lifetime of the loan. Again, the terms will be contingent on what is outlined in your product.
Choosing a Retirement Mortgage
There are a lot of equity release schemes available. Home reversions and lifetime mortgages offer great solutions for some homeowners. However, if you are considering a retirement mortgage, you will need to consider a few different factors.
For example, it might seem wise to apply with another borrower. If you and your spouse both own your property, you will likely both want to be part of the retirement mortgage application. That seems to make sense on the surface. However, it can actually hurt you to borrow jointly. That is because you are expected to continue your repayments even after one of the homeowners has passed. So, each of you have to be able to prove that you could afford the repayments independently if you are the homeowner left. An adviser can go over much of this with you and help you to determine if a retirement mortgage is right for you and how you should borrow, if you do decide to move forward.
Who Should Take Out a Retirement Mortgage?
Many older individuals find that they need more money during retirement than they originally predicted. For those individuals, a retirement mortgage can be a great option to help secure financial freedom.
The homeowners that find retirement mortgages most helpful are usually those in one of the following situations:
• Moving to another location such as a retirement development
• Home needs improvements and repairs
• Children and grandchildren need extra cash
• Lenders need a repayment on the final mortgage balance
• Additional cash is needed for expenses such as a holiday, new car, or other big purchase
There are several documents required when you apply for a retirement mortgage. You must be able to prove that you can afford the required repayments against your loan, which means that your lender will do checks of your income.
If you are employed through an employer, you should expect to provide the following documents:
• Any and all occupation pension forecasts
• State pension forecast
If are self-employed, you will need to provide the following:
• Pension forecast
• Typically, 3 years’ of trading accounts
If you have already started receiving a pension, you will need to provide the following documents:
• P60’s from any and all occupation and private pension schemes
• The last annual Department of Work and Pensions State Pension letter you received
• The last three months’ worth of bank statements or some other form of pension income proof
Finding an Adviser
Deciding on a retirement mortgage can be a very big decision and there are many considerations to be made. As such, we always advise homeowners to reach out to their local adviser to get much needed support and guidance. We can always assist in helping you choose the product that will best suit your needs during your retirement years.