Retirement interest-only mortgages are aimed at older borrowers. They might appeal if you're unable to completely pay off your mortgage before you retire.
If you take one out, it means you only pay the interest on your mortgage, rather than the actual lump sum you've borrowed.
That means that at the end of the mortgage term, you'll need to repay the debt in full, which may mean selling your home.
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1. Why should I take out a retirement interest-only mortgage?
Retirement interest-only mortgages can be useful because they can help to keep your monthly outgoings low.
Repayments on retirement interest-only mortgages are significantly lower than those on a standard repayment mortgage.
That's because you're only paying the interest on the mortgage debt, rather than reducing the money you owe with a bit of interest added on.
A less expensive mortgage might help to free up pension cash or savings to cover retirement projects or your living expenses.
But, at the end of the mortgage term, your home will need to be sold to cover the loan.
2. How retirement interest-only mortgages work
How old do I have to be to get one?
Retirement interest only mortgages are mainly aimed at the over 55s.
Some providers only offer these mortgages to the over 55s, others may have a higher or lower minimum age.
What do I need to do to qualify?
As with any mortgage, you'll need to pass the affordability checks to ensure you can make the monthly interest-only repayments.
Can I get a retirement interest-only buy-to-let mortgage?
This type of mortgage is typically only available on your main residence. But, some lenders have recently eased the rules and started offering buy-to-let mortgages to retirees.
So, buy-to-let retirement interest-only mortgages are rare, but not unheard of.
A broker could help to steer you to appropriate lenders if you're interested in this as an option.
Why do the monthly repayments stay low?
The monthly payments stay low because you're only paying the interest on the outstanding mortgage balance, rather than repaying the lump sum of what you've borrowed.
How big does my deposit need to be?
Typically, deals come with a maximum 60% loan-to-value (LVT), meaning you need to own at least 40% of your property outright before you can apply.
What happens at the end of the mortgage?
The loan is usually only paid off when you die, move into long term care or sell the house.
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3. Can I get a repayment mortgage in retirement?
Yes you can. As long as a lender is satisfied that you can meet the monthly mortgage repayments, they'll be happy to loan you the money.
As with mortgages at any age, you'll need to go through all the usual financial checks with your chosen provider.
Some lenders may impose upper age limits, but legally, you can apply for a mortgage at any age, as long as you have the means to repay it.
4. What are my options if I don’t want an interest-only retirement mortgage?
If you don’t fancy interest-only, there may still other options available.
Equity release
If you’ve already had a repayment mortgage on your home for some time, then equity release is another option available to older borrowers.
It can free up a chunk of your cash for you to live on or invest with.
But equity release loans work differently to retirement interest-only mortgages and can lead to larger debts. So you'll need to think carefully before doing this.
Discover more mortgage options for the over 50s.
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