There are an increasing number of mortgage options that are being made available specifically for those nearing retirement. Whereas lenders in the past have oftentimes been adverse to lending money to older homeowners, this market has opened up considerably due to a huge demand for extra funds from those nearing retirement age. One such option available to homeowners nearing retirement age is an “interest-only lifetime mortgage”. For those who are curious and want to learn more about how they can get cash from their home while still living in it, read on to find out whether or not an interest-only lifetime mortgage would be right for you, and how to go about getting one if you qualify.
What Is an Interest-Only Lifetime Mortgage?
Interest-only lifetime mortgages were introduced to the market only fairly recently. They allow older homeowners who might not traditionally be able to qualify for a standard mortgage the opportunity to receive funds from their property while still retaining ownership. As compared to traditional mortgage loans, those who receive interest-only lifetime mortgage loans only have to pay off the accrued interest each month and not any portion of the loaned money itself.
The money borrowed from an interest-only lifetime mortgage is typically not repaid until the receiver of the loan dies, moves into long-term care, or otherwise sells the property. However, there can be loans made with more clear-cut terms and established time frames for repayment, such as either a certain number of years elapsed after the loan or the moment a homeowner reaches a certain age. Typically, though, the point of an interest-only lifetime mortgage is for the money not to be repaid until the property is sold after the death of the homeowner.
One of the benefits that interest-only lifetime mortgages have over many other types of mortgage loans are that those who are attempting to qualify for them don’t always have to prove their income traditionally. Instead, those wishing to qualify for an interest-only lifetime mortgage typically only have to prove that they will be able to make the interest payments after their retirement. Depending on the specific loan, the homeowner may be able to pay off some amount of the loaned money on top of the interest payments, which will decrease the amount of money they owe on the loan overall. However, with most interest-only lifetime mortgages, the vast majority of the initial loaned sum isn’t paid off until the end of of the loan.
How Much Money Can I Get from an Interest-Only Lifetime Mortgage?
As with most loans, the specific amount of money that a homeowner stands to receive from an interest-only lifetime mortgage can vary greatly depending on the lender, as well as a variety of other conditions that will need to be determined before the loan goes through. On the whole, however, those who are looking to qualify for an interest-only lifetime mortgage are typically going to be able to borrow less money than those attempting to qualify for a traditional mortgage loan. If you make a plan to pay off a small amount of the loan sum as well as the accrued interest, you may be able to borrow more money, but that may defeat the entire purpose of seeking out an interest-only lifetime mortgage in the first place
How Much You Can Receive Depends On Both the Value of Your Property and Your Retirement Income
On average, those looking to procure an interest-only lifetime mortgage may be able to receive up to 50% of the value of their property. The value of their property, then, will be determined by an inspector hired at the behest of the lender. This inspector will look at the condition of your property and compare it to the value of other properties in the area. When determining how much money you stand to receive from your loan, lenders will also take a close look at how likely it is that you’ll be able to make your payments in full post-retirement.
Where Can I Get an Interest-Only Lifetime Mortgage?
Older homeowners nearing retirement age are oftentimes some of the most eager candidates for any type of mortgage. Luckily, as the market has opened up due to this apparent need, it’s getting less and less hard to find a lender who is willing to offer an elderly candidate a fairly reasonable interest-only lifetime mortgage. Interest-only lifetime mortgages were created as a result of customer demand, and most lenders are sure to jump at the opportunity to do business with candidates nearing retirement age, so long as they can show proof that they’ll be able to repay the interest.
Finding the Mortgage with the Best Terms for Your Needs
When choosing a lender that is offering the best interest-only lifetime mortgage for your needs, you may wish to talk with a third-party consultant who can help advise you on the specifics of the agreement. Financial advisors can help talk you through the terms and help you choose a loan that will work with you and your expected financial situation post-retirement. As well, homeowners are traditionally advised to seek out the aid of a solicitor before signing off on any financial paperwork, no matter how benign.
Why Might I Want an Interest-Only Lifetime Mortgage?
The funds accrued from interest-only lifetime mortgages may be put to a wide variety of uses depending on the whims of the individual homeowner. Homeowners may wish to use their loan to put a down payment on a vacation or retirement property, as a gift or college tuition for a younger family member, or simply as a way to supplement their income so that they can live well within their means after retirement. You can do whatever you want with the money you get from your interest-only lifetime mortgage, and there’s no law in place that says that you have to spend it wisely. However, those looking to take out any type of mortgage will always benefit from having some plan in place for how to spend the money, and how they’ll make the payments when the time comes.
Taking Out a New Mortgage to Consolidate an Old One
It is increasingly common for people to take out interest-only lifetime mortgage loans as a way of consolidating previous debt. Oftentimes, those who do so will receive better terms on their new loan than they did on their old one, meaning they’ll thoretically be paying less. Daisy-chaining mortgages like this may seem like an easy solution in the moment, but those looking to take advantage of such procedures are advised to have a firm goal in place for paying off their debts in the long-run, lest they end up with nothing to pass on to their families. As with any huge financial decision, it’s always just as important to think about the future as it is to think about the present.
Interest-Only Lifetime Mortgages Were Created for Those Nearing Retirement
It’s a sad fact of life that oftentimes the people most in need of a loan are also the people who don’t qualify for one. This is the reason that more and more lenders are introducing interest-only lifetime mortgages, as well as other loans that are specifically favored towards older clientele who may not traditionally be able to qualify for a mortgage. With interest-only lifetime mortgages, those nearing retirement age are allowed the money they need to live a healthy and happy life post-retirement. For many, the benefits are clear.
How Do I Prove I Can Afford a Mortgage When Nearing Retirement?
When qualifying to take out an interest-only lifetime mortgage, lenders will typically look explicitly at the amount you will be able to make in payments as you near closer to and/or enter retirement. This will include pension income, savings, investments, and any other form of income that might be pertinent after you stop working. The higher amount the lender predicts you will be able to make in payments given either your predicted or current retirement income, the greater amount you stand to receive from your interest-only lifetime mortgage.
How Is an Interest-Only Lifetime Mortgage Different from Equity Release?
The biggest difference between an interest-only lifetime mortgage and an equity release is that the latter doesn’t require you to make monthly payments. After releasing equity from your home, you typically do not make any payment until your home is eventually sold, and this usually doesn’t occur until the event of the homeowner’s death. With interest-only lifetime mortgages, then, there are monthly payments, but with those payments, as established, the homeowner is only obligated to cover the monthly accrued interest.
Interest-Only Lifetime Mortgages Require Monthly Payments, Equity Release Doesn’t
Interest-only lifetime mortgages may pose certain advantages over equity release for many homeowners, as making monthly payments on the interest means less debt over the course of the loan. However, releasing equity from your loan does have the advantage of not requiring you to make monthly payments, which may benefit those who would be unable to do so. Both options were created as means for individuals nearing retirement age to get money from their homes, and both options have certain pros and cons that may make them more or less viable for certain homeowners.