Owning a home is a dream come true; paying a capital and repayment mortgage in retirement however can be a nightmare for most pensioners. Certain organisations offer mortgage plans where you only pay interest, which makes it easier for you as a home owner to make the monthly payments. Pensioner mortgages are therefore becoming increasingly popular and the interest only lifetime mortgage route seems to be the key.
Features of the interest only mortgage
Money lenders assign a period of years for an interest only mortgage plan. You as a borrower are required to make monthly payments on the interest over the estimated term on your loan. The term is estimated as the plan will continue for the remainder of one’s life and as yet no one can accurately judge what life expectancy is for anyone!
This basically means that you do not have to pay any money off the principle amount; nevertheless you are repaying the interest generated by the charge levied on the capital each month. This ensures the capital element will always remain constant, providing payments are maintained.
However, until recent regulations changed on mortgage lenders providing their customers with an interest only mortgage, there may be some people trapped between the old and new regimes. The issues arising here are what happen when one needs to take additional funds via a further advance or moving house?
What of the past?
Many people have previously been granted an interest only mortgage running well into retirement with no repayment vehicle in place. However, from experience those same mortgagors now needing amendments to this plan find they have to adapt to the new regime of the mortgage lender. This creates a major problem.
Under the new regulations, the client usually must have to pay off the new mortgage by the time they are 75 and unless they offer an interest only lifetime mortgage then it must also be on a capital and repayment basis. Difficulties therefore will arise when someone age 65 then has to pay off a £50,000 mortgage by the time they are 75! Affordability will therefore be the issue as monthly payments of paying off £50,000 over 10 years will be outside the realms of most pensioners.
The Future Option
Next we discuss the interest only mortgage options available to pensioners with mortgages that need to meet their future retirement objectives. You might be an individual suffering from a mortgage that needs to find a way to pay it off or at least roll it over into a new loan. When you look at interest only mortgages that come with new restrictions due to market changes, you also have to consider different lifetime mortgage options.
Interest only mortgages that need to be paid off as you enter retirement could be taken care of with a rollover lifetime mortgage. It is a lump sum mortgage, but designed to take care of the older mortgage you have and place longevity on the new one. Basically, you use the new retirement lifetime mortgage lump sum to pay off the current mortgage. The theory is to have enough equity in your home to also gain a little extra tax free cash to help your retirement along, but if this is not the case at least you have extended your mortgage comfortably.
All interest and repayments are due at the end of your life with this rollover option. It alleviates your retirement concerns regarding having enough money with your pension and retirement investment accounts. While it is not an interest only mortgage, at least you have a solution to your current mortgage troubles.
Disadvantages do exist for these mortgages:
• You still have to repay the loan.
• Interest is accruing while it is in non repayment.
• As the interest compounds you are losing inheritance to leave behind for your children.
If these three disadvantages do not seem to harmful to your current situation or you simply want to lead a better retirement, then consider speaking with a representative from an independent financial agency to get unbiased information about these various products including interest only mortgages.
Advice from an unbiased financial expert is a great way to find out about the different products on the market. It is also a potential help for you with regards to talking about your ideas, what is available, and what might be better for you since the person will have more knowledge about the industry. If you keep up with the news, discover new products via comparison sites, and get advice your retirement may be alleviated from its current position.