What if you need to move to a more expensive property when you retire? Is there a mortgage solution that fits your needs? Mark Gregory offers two possible options…
Question
I am in my late 70s and hope to sell my house, a two bedroom apartment, to be closer to my daughter and two grandchildren. I would like to buy my own property with the proceeds from the sale of the apartment but the prices in my daughter’s city are more expensive than my current area, so I have a deficit.
I spoke to a mortgage broker who suggested an interest-only mortgage for retirees. I’m nervous about this but my daughter suggested I look more into other mortgage options available – can you help please?
Mark’s answer
Hello, and thank you for your question. It’s completely understandable to feel wary about taking out a mortgage later in life – but you’re doing the right thing by properly exploring your options before making any decisions.
Many people approach borrowing later in life with some apprehension, and feel more comfortable when a qualified advisor explains the options to them in plain English.
If you wish, your daughter can also attend any talks with your permission. This can be either face to face, over the phone, or an online video/zoom meeting – whichever works best for you.
From what you described, Broker A suggested… Retirement Interest Only (RIO) Mortgage.. This is one option, but it is not the only option. Another common solution is a Lifetime mortgage (Issuing shares). Both can help make ends meet when purchasing a new home — the main difference is how the down payment works.
Option 1: Retirement Interest Only (RIO) Mortgage.
A RIO allows you to borrow a lump sum and earn it Contractual monthly payments This cover Interest only. The equity balance remains due and is usually repaid upon death, move into long-term care, or sale of the property.
Advantages
- You only pay interest, so the payments can be less than your mortgage payment
- You can retain 100% ownership of your home.
- Because the principal does not increase (assuming payments are maintained), it can help preserve the equity of the inheritance
- Authorized by the Financial Conduct Authority (FCA)
Disadvantages
- You must prove that you can afford the interest payments from your retirement income
- Default can result in repossession, as it is a standard mortgage obligation
- The payments will continue throughout your life – and therefore later in life
- The loan still reduces the inheritance, as the principal from the estate must eventually be repaid
Option 2: Lifetime mortgage
A lifetime mortgage can also provide a tax-free lump sum to help you purchase your new home, but it offers more Flexibility around payments.
With a lifetime mortgage, you can choose the following:
- Make no payments and allow interest to accrue,
- Make voluntary, ad hoc partial payments of up to 10% per annum
- Make full or partial interest payments (often referred to as… Interest service) – The choice is yours, and unlike an RIO, these payments are usually optional and not contractual.
Advantages
- You can retain 100% ownership of your home.
- Fixed interest rate for life
- A There is no downside security for stockswhich means you won’t be left with debt that exceeds the value of the home (provided it sells for the best price you can reasonably get)
- Service providers are members of Equity Editorial Board The schemes are regulated by the Financial Conduct Authority (FCA).
Disadvantages
- If you don’t make payments, the balance can grow due to compound interest
- May affect benefits experienced in some circumstances
- Early payment may include an early payment fee, depending on the product
- Releasing equity can reduce the remaining inheritance for your beneficiaries
What should you do next?
The correct answer depends on your income, your choice of new property, the size of the deficit, and how comfortable you feel committing to monthly payments. An entire market advisor can compare a RIO mortgage and a lifetime mortgage side by side and recommend one that best suits your needs.
You can speak to one of our friendly expert advisors directly 0800 088 5769. There is no obligation, and you only pay a consultation fee if you follow through with the completed recommendation and are completely happy.
Meet our expert…
Mark Gregory, Founder and CEO Supermarket stock issuehere to answer your questions. Mark is himself a consultant with over 20 years of equity issuance experience.
He launched Equity Release Supermarket 10 years ago and has developed into one of the UK’s leading equity release specialists.
Email kate.saines@emap.com to ask a question
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