What Are The Different Later Life Mortgage Options?

When you’ve been saving into your home by paying off your mortgage for years and years, the thought of taking out an additional mortgage can be an unwelcome one. However, there are a number of circumstances in which doing so might be necessary or beneficial, whether that’s to pay off an interest-only mortgage, unlock some cash to support family members, or simply enjoy your later years to the fullest.

The good news is that later life lending is actually more flexible than you might think. While the criteria for standard mortgage products can be trickier to meet as you get older, these aren’t the only products on offer. In fact, there is now a wide range of later life mortgage options tailored specifically to the needs of other borrowers. 

To demystify this process fully and help you make sense of the options available later in life, we have put together this short guide to the different mortgages for over 50s and the considerations you may need to make if you’re considering applying for one. 

Why Get A Later Life Mortgage?

The days of securing your first mortgage and buying your first home will naturally feel like a rather distant memory. You might even be close to paying off your mortgage, and have no plans to move again. However, it’s also normal to have reasons to want to borrow more at this stage in your life. Another mortgage can be the most suitable way to do this

Specifically, a later life mortgage allows you to unlock some of the value tied up in your home and make the most of the asset you’ve worked so hard to pay for throughout your life. There are a number of goals a later life mortgage can enable you to fulfil, including:

• Paying off an existing mortgage, including an interest-only mortgage
• Funding home improvements, such as a new kitchen, extension or driveway
• Supporting loved ones with help to get on the property ladder, school fees, or ongoing living costs
• Supplementing your retirement income with funds for a new car or dream holiday
• Increasing quality of care later in life

Later Life Mortgage Options

There are two main types of later life mortgage available to borrowers who resonate with the needs and wants outlined above: equity release mortgages and retirement interest-only mortgages. The features and risks of these products vary, so we have outlined their key features below to help you get a better understanding of how they might work for you.

Equity Release

Equity release allows you to unlock some of the money tied up in your home without having to move or downsize. The money you release is tax-free, and you must be over 55 to be eligible. 

There are two main types of equity release:

1. Lifetime Mortgage

A lifetime mortgage is the most popular type of equity release and involves borrowing a portion of your home’s value while you continue to own and live in the property. The amount borrowed, plus accrued interest, is then repaid from the sale of your property when you pass away or move into long-term care.

Unlike a conventional mortgage, there are no required repayments with this type of later life mortgage. Instead, interest can roll up and be added to the final loan balance. You can choose to make monthly interest payments to reduce the amount owed, and you can even opt for a product which allows you to access the money you release in stages via a ‘drawdown’ facility. 

However, it is important to note that opting for a lifetime mortgage will reduce the value of your estate and could affect your entitlement to means-tested benefits. You must talk through your options with a qualified adviser to fully understand the features and risks and ensure any product you apply for is the right one.

2. Home Reversion Plan

A home reversion plan is not technically a later life mortgage but is another type of equity release. It involves selling part or all of your home to a provider in exchange for a lump sum.

With a home reversion plan, you retain the right to live in the property, rent-free, for life. When your home is eventually sold, the provider will then receive their share of the proceeds, which will reduce the amount you can leave as an inheritance. 

Retirement Interest-Only Mortgage

A retirement interest-only mortgage (RIO) is much more similar to the traditional mortgage you may have taken out to buy your home. The key difference is that it is designed specifically for older borrowers.

With a RIO mortgage, you are required to service the interest by making payments each month. The amount borrowed is then repaid when the last surviving homeowner passes away, moves into care, or sells the property. 

To be eligible for this type of later life mortgage, you must be over 50 and be able to demonstrate that you can afford to make monthly interest payments. However, these payments are typically lower than a standard mortgage as they do not include the amount borrowed. 

Alternatives To Borrowing

While the later life mortgage options can undoubtedly be the ticket to financial freedom, it’s important to acknowledge that these products are not the only way you can achieve your goals. For example, downsizing is a popular alternative and allows you to release some of the funds tied up in your current property without any additional borrowing.

You might also wish to consider utilising existing savings and investments, or seeking financial support from family. All of these alternatives should be considered, alongside guidance from a qualified adviser, so that you can be certain you have chosen the right solution for your goals and personal situation.

Later Life Mortgages vs Conventional Mortgages

Alongside the specialist later life mortgage options and alternatives available, it may still be possible to take out a standard residential mortgage later in life. There are a number of specialist lenders who are willing to consider all types of mortgage lending, though it is important to note that lending criteria are typically stricter the older you get. 

Later life mortgages therefore offer a welcome alternative to the complexities specific to standard mortgages later in life, with no required repayments and the ability to borrow against your existing property while staying put.

At Mewstone Later Life, it’s our mission to help you explore each and every one of your options, including whether you might still qualify for a conventional mortgage. We’ll assess your income, pension, and home’s value to give a complete understanding of the different types of later life mortgages and which might be right for you. 

Call us on 01752 922549 or visit our dedicated later life mortgages page to book a call with our award-winning later life mortgage advisor to discuss your situation and find out what’s possible.