A guide to later life mortgages and lending

As retirees enter a new phase in their lives, managing financial needs and resources becomes paramount. The growth of later life mortgages over the past few years has helped many retirees borrow into retirement, overcoming previous age restrictions of traditional mortgages. Here, we explore these mortgages in detail.

What is later-life lending?

Later-life lending includes various financial products designed for people in their retirement years. These products help retirees meet their unique financial needs, such as supplementing retirement income, paying for healthcare, making home improvements, or improving their overall quality of life.

What are later-life mortgages?

As you approach retirement, finding suitable mortgage options can become challenging. Traditional mortgages might not meet your needs, or you may be excluded due to age restrictions set by lenders. This is where later life mortgages come into play.

Later life mortgages allow you to borrow money beyond a certain age, even into retirement. Various options are available depending on the provider, all designed with the same goal: to help you financially support your later years.

Retirement mortgages are usually set up as lifetime mortgages. This means they last until the borrower passes away or moves into permanent care. The loan is secured against your home, and you can choose between a repayment mortgage (where you pay back both the loan and interest) or an interest-only mortgage (where you only pay the interest).

What are the different types of later-life mortgages?

There are two main types of mortgages for later life:

• Retirement Interest-Only Mortgage (RIO): These are for homeowners aged 55 or older and allow you to borrow into retirement. You only pay the interest each month, keeping costs low. The loan is repaid when the property is sold, usually after the last homeowner dies or moves into long-term care. Unlike standard mortgages, RIOs don't have an end date.
• Lifetime Mortgage: Also for people aged 55 or older, this lets you borrow against your home's value by releasing equity. You can keep living in your home, and the loan is repaid when the last borrower dies or moves into long-term care. Interest is charged at a fixed rate, but you can pay some off if you want to reduce the final amount owed.

What are the benefits of retirement mortgages?

There are many advantages to retirement mortgages, whether you choose a retirement interest-only mortgage or a lifetime mortgage. 

Advantages of RIO Mortgages: 

• Lower monthly payments. One of the primary benefits of RIO mortgages is that the monthly costs are often low and easily managed when compared to traditional mortgages because you are only paying back the interest each month.
• Borrow into later life. RIO mortgages are products specifically created to allow retirees and older homeowners to borrow when age restrictions cross out other options. 
• Access money tied up in your home. RIO mortgages can provide a strategy to access the equity in your property, unlocking funds for travel plans, home improvements, debt consolidation, or even helping a loved one buy a home of their own.

Advantages of Lifetime Mortgages: 

• You keep your home. With both lifetime and RIO mortgages, you still own your home and can keep living in it.
• No monthly repayments. One of the key benefits, and differentiators versus a RIO mortgage, is that you don't have to make monthly repayments.
• Get tax-free cash. You can access tax-free money from your home's value, which might have gone up over time. This gives you extra cash without selling your home.
• Enjoy a better lifestyle. Use the extra money to improve your lifestyle. You can renovate your home, remortgage or even go on a dream holiday.

How to get a later-life mortgage

Applying for a later-life mortgage is a significant financial decision, and having expert guidance can make the process smoother and ensure you are choosing the right one for you. The team at Saga Mortgages can provide the expertise and support you need to navigate this journey effectively and find a solution that is unique to you and your family.

Their award-winning smart technology and team of mortgage experts work together to find the right option from across the market, based on your eligibility, unique financial situation and retirement goals. They’ve already helped thousands of homeowners and movers! To start exploring your retirement mortgage options, create a free plan today.

Other later-life lending options

RIO and lifetime mortgages offer specific advantages, but they may not be ideal for every retiree. It’s essential to explore alternative later-life lending options, which include:

1. Standard interest-only mortgages

Standard interest-only mortgages work like RIO mortgages but are available to more people. The main advantage is that they usually have lower interest rates than RIO mortgages. This is because RIO mortgages charge more since they don't have a fixed end date. However, to get a standard interest-only mortgage, you might need a higher income and meet stricter requirements.

2. Remortgaging

If you already have a mortgage, remortgaging and switching to a new deal might get you lower interest rates or better terms, which can lower your monthly payments. However, you need to qualify for the new mortgage, which can be harder if you're older.

3. Deposit Boost

If you want to use a RIO mortgage to release equity from your home to gift to a loved one, a potential alternative is a Deposit Boost. This involves using a small mortgage secured against your own property, allowing you to release equity. This can be as an RIO mortgage, which will keep the monthly repayments more affordable, or a standard remortgage. 

The proceeds will then be gifted to a loved one, who will then use them to top up their current house deposit or use them as their entire down payment. It takes, on average, eight years to save up for a house deposit, so giving your loved ones a helping hand can help them buy their first home a lot quicker.

Plus, with a larger house deposit, your loved ones can increase their buying budget and access lower interest rates. In fact, on average, Deposit Boost customers save £17,000 in interest payments over five years.