What are your options if you still have a mortgage in retirement?

Gone are the days when retiring with a mortgage-free home was the norm. One in five of us now expect to carry a mortgage into retirement, according to the Equity Release Council.

In the last three months of 2024, 1,929 retired homeowners took out a new mortgage, an annual increase of 29%, according to UK Finance.

With greater life expectancy, longer working lives, increased financial pressures and the rise in ultra-long mortgages spanning 35 years or more, this trend is only likely to grow. As a result, over the past few years, lenders have been adapting to the needs of older borrowers by increasing the range and flexibility of later-life mortgage products.

This guide explores your key options and considerations. 

What’s on this page?

• Your mortgage options in retirement
• Retirement interest-only (RIO) mortgages
• Standard mortgages in retirement 
• Paying off your mortgage with savings?
• Later life borrowing examples - how do the options compare?
• Before you take out a mortgage: checklist

Your mortgage options in retirement

Sarah Coles, head of personal finance at Hargreaves Lansdown, says there are many reasons why you might find yourself carrying a mortgage into retirement.

“The price of property while you were moving up the ladder may have meant taking out larger and larger loans and running out of time to repay. You may have needed to dip into the equity as you went along for other things. There are also life events that can mean you buy when you’re older, such as divorce.”

Richard Dana, chief executive of specialist mortgage broker Tembo Money, which partners with Saga to provide a mortgage advice service, says: “There are a growing number of options for customers to borrow into retirement, well beyond the traditional equity release products.”

Traditional equity release used to be the default option if you needed a mortgage in retirement. The most common form of equity release is a lifetime mortgage. That means you borrow a lump sum which is secured on your home, the loan accrues interest and it all gets paid off when the home is finally sold (usually at end of life or if going into a care home).

But lifetime mortgages have dramatically changed in structure over recent years, according to David Forsdyke, partner at Knight Frank Finance. It’s no longer just about letting the interest roll up – although this is still available and appropriate for some – it’s about giving borrowers more choice.

“Now you can have lifetime mortgages that have monthly and ad hoc repayments. Some lenders will even offer discounts on the interest rates they charge if borrowers are prepared to commit to a certain level of payment every month. There are others that will allow you to borrow more money again if you commit to making a regular level of payment for a set time,” he says.

Because there are no contractual payments to make with a lifetime mortgage, there isn’t an affordability assessment. “So, if you see a sudden drop in your income when you retire but you still have a mortgage that needs dealing with, then lifetime mortgages can be a good option,” adds Forsdyke.

Use Saga’s Equity Release calculator to get an indication of how much you could borrow through equity release. The average retired homeowner has a home worth more than £330,000, but a household income of just over £30,000, according to research from later-life insurer SunLife.

This means the vast majority are cash-poor and property-rich. While most own their homes outright, around 1 in 20 still have a mortgage, says Mark Screeton, CEO at SunLife. “For those people, a huge chunk – almost a third – of that relatively modest income is still being spent on housing. It could make sense for some of these people to tap into that equity that is tied up in their homes.”

We explain your options here if you want to pay off your mortgage before retirement.

1. Retirement interest-only (RIO) mortgages

Retirement interest-only mortgages have had a slow start, but now more lenders are introducing them and being more creative in terms of affordability criteria. Lenders will look at investment income, uncrystallised pension funds, rental income as well as just pension retirement income, says David Forsdyke.

As with a standard interest-only mortgage, a RIO mortgage has two parts: the interest and the capital.

Your monthly repayments cover just the interest. The actual loan is usually only repaid when you sell your home, move into long-term care, or pass away. With RIO, you have a contractual payment you must make, or risk repossession – as you would with any other mortgage.

The advantage of paying off the interest is that the interest charged on mortgages is compound interest – this means you will also pay interest on the money you owe in interest, so the bill can pile up, especially if you live longer than expected.

2. Standard mortgages in retirement

Around two in five of all new mortgages have terms that will run past pension age.

As a result, there are an increasing number of normal mortgage lenders now willing to lend to older borrowers in retirement, says Ryan Etchells, chief commercial officer at specialist mortgage provider Together. “Some lenders, including specialists, are taking into account pensions and benefits payments or other income, for example, from rental income, when assessing affordability.”

Richard Dana adds that Saga Mortgages are now seeing more lenders that don’t have an upper age limit at all, or who have increased it to 85 or even 95. It means that if you’re 70 and you still have a mortgage (or need a new one), you can get an ordinary one that might last for 20 to 30 years.

A benefit of standard mortgages in retirement is they tend to have the lowest interest rates of all the later life lending options. Currently, it’s largely the smaller lenders and building societies offering more flexibility and alternative mortgages, rather than the big high street names.

According to the Mortgage Advice Bureau, there’s been a 4% year-on-year increase in retirees switching mortgages, and a 25% rise over five years in borrowers choosing new deals with their current lender.

3. Paying off your mortgage with savings?

If your mortgage stretches into retirement, you might be thinking about paying it off, perhaps using savings or the 25% tax-free lump sum from your pension.

While becoming mortgage-free in retirement is a desirable goal for many, the decision to use savings or pension cash to pay off a mortgage requires careful consideration, from early repayment charges to the tax implications and whether you could get a better return on your money in savings.

Seeking specialist advice is essential. Ben Thompson, deputy CEO at the Mortgage Advice Bureau, says the decision could be a straightforward, numbers-based one. “For example, are you better off paying your mortgage off early, factoring in interest rates and your tax position?

Alternatively, are you taking into account other important considerations, such as the size of your overall estate and potential inheritance tax (IHT) liability, and whether you may need to support your loved ones with properties or weddings in the future?”

Later life lending examples - how do the options compare?

A retired couple, both aged 71, want to repay an existing mortgage of £30,000 and raise an additional £30,000 for home improvements. Their home is worth an estimated £350,000. Knight Frank Finance outlines different possible options. Note that these are examples – the options available to you will vary depending on your own circumstances.

Option 1. A lifetime mortgage

You could borrow £60,000 at 6.47% fixed for life.

• No monthly contractual payments to make, but you can make voluntary overpayments of up to 10% of the loan each year without penalties or charges.  
• Flexible: Payments can be regular, perhaps monthly, or ad hoc whenever you have surplus funds. 
• No affordability assessment (because there are no contractual payments). 

Disadvantages:

• Early repayment charges apply for at least the first eight years if you want to repay the full amount.
• Higher interest rate than the other options in this scenario, and it is fixed for life. 
• Interest roll-up can significantly increase the total debt over time if no voluntary payments are made, reducing the equity left in the property. 

Option 2. Retirement interest-only (RIO) mortgage

You could borrow £60,000 at 5.29% fixed for two years with no early repayment charges. At the end of the two years, you’ll revert to the lender’s standard variable rate, or can repay the loan or move to another fixed deal. Initial monthly payments of £265.60.

Advantages

• You pay the interest on the loan monthly (although are not repaying the capital) 
• No early repayment charges, so you can change to a different product or repay at any time. 

Disadvantages

• Affordability assessment will need to show payments can be met from pension/retirement income, and/or from potential investment income.
• You are not repaying the initial £60,000 borrowed – just servicing the interest. 
• Your home may be repossessed if you do not keep up the repayments.

Option 3: Ordinary mortgage

You can borrow £60,000 at a 4.74% discounted rate for the first two years. Other rates are available, for example fixed over two or five years.

For a mortgage term of 10 years, initial monthly payments would be £627.86 and the loan would be repaid at the end of the 10 years.

• Lower interest rate than other mortgage products 
• Shorter period of early repayment charges compared to a lifetime mortgage.  

Disadvantages:

• Affordability assessment needed. 
• Some lenders may insist on a capital and interest repayment mortgage, although with a low loan-to-value, interest-only borrowing should be available. 
• Your home may be repossessed if you do not keep up the repayments. 

Before you take out a mortgage: checklist

1. Speak to a financial adviser who specialises in later life/retirement planning who can look at all product options across the whole market for you. Find qualified advisers at Unbiased.co.uk or VouchedFor.co.uk.

2. Check your credit score and find ways to improve it if needed, before you approach lenders. 

3. Think about your other credit commitments outside mortgage, for example credit card debt or finance on your car. Your mortgage adviser can work out if it’s cost effective to consolidate those other commitments with your mortgage or not as you transition into retirement. 

4. Understand all fees involved: such as arrangement fees, valuation fees, legal fees, and any advice fees. 

5. Have all your documents ready, such as proof of income from pensions, annuities or buy-to-let property.