If you’re looking to take out a mortgage in your 50s or beyond, there are likely to be options, but it’s essential to have a long-term repayment strategy.
If you think it might be difficult – or impossible – to get a mortgage if you’re close to retirement age, it’s time to think again. As a nation, we’re living longer than in previous decades, and banks and building societies have now changed their policies to reflect our longevity, and the fact that more older people are separating and starting out again.
Consequently, getting a mortgage in your 50s, 60s and beyond is possible, provided you meet the lender’s criteria. Before taking one out, however, it’s important that you understand the risks and that you have a long-term strategy for your mortgage payments in place, so that you know how you will pay it off. This is especially important if you think you will retire before the end of your mortgage term.
What are your options?
If you’re looking to take out a mortgage later in life, you have several options, depending on your age and how close to retirement you are (or if you’re already retired). These include:
A standard mortgage
More and more lenders are willing to approve mortgages to older lenders because they will consider that many people now keep working beyond state retirement age. This means that, up until age 55, you may well be able to take out a standard mortgage with a high-street lender, depending on how long you want the mortgage term to be and what your monthly repayments will be.
Retirement interest-only mortgage (ROI)
With an ROI mortgage, you pay off the monthly interest, not the capital. Usually, ROI mortgages don’t have a fixed term; rather, the loan will be paid back after you pass away or go into care, and the house is sold.
Lifetime mortgage
A lifetime mortgage is a type of equity release which allows you to release tax-free cash from your home without needing to move. As with an ROI mortgage, the loan doesn’t need to be repaid until after your death or need for long-term residential care. You can pay back the interest each month to reduce the amount owed if you want to.
How will you be assessed by a lender?
If you’re looking to take out a mortgage close to or during retirement, a lender will need to be satisfied that you’ll be able to repay the loan. You must prove that your projected income will cover your repayments and/or interest. This income might come from:
• Your state pension
• Any private pensions you might have
• Any property or investments you might have
• Your salary if you plan to keep working beyond retirement age
Know your pension projections
If you have a private pension and are unsure what your pension income will be once you reach retirement age, it’s important to contact your pension provider, who can show you the projections.
Plan for your mortgage payments
If you take out a mortgage in later life – say, in your 50s or 60s – and know you’ll be paying it back beyond retirement age, it’s important to plan how to manage this.
Paying off your mortgage
Before taking out the mortgage, make sure you do some number crunching. If you’re still going to have a mortgage in your 70s (or beyond), how will you pay it back when you’re no longer earning a salary? Check your pension forecast. Might you come into any inheritance in the future? Start planning now.
Make overpayments where possible
If you’re still working when taking out your pension, consider making overpayments if you can, as you head towards retirement age. Typically, lenders will allow you to make annual overpayments of up to 10%. The more you pay off before retirement, the smaller your monthly repayments will be when you do retire – or the sooner you’ll be mortgage-free!
Create a retirement budget
Map out your retirement budget, including your mortgage repayments and all other essentials, including bills and food. This way, you’ll see how much is left with which to enjoy your retirement.
Speak to an adviser
It’s important to speak to a mortgage broker before taking out a mortgage in later life. They will be able to offer you specialist advice and support and help you figure out your finances so you can head into your new mortgage agreement feeling confident you’re able to pay it off. We’re here to help you plan ahead.