In This Article
What are later life mortgages?
Later life mortgages usually refer to equity release mortgages. These are mortgages that can be taken from age 55 (subject to criteria) that are to be repaid when the last applicant passes away or goes into full time care.
At that point, the property would be sold and the loan would be redeemed. It is possible to pay the mortgage off before this point but many have early redemption penalties for doing so.
The majority of later life mortgages/equity release products are on a roll-up interest basis. This means that it is not required to make monthly interest payments but as a result, the interest gets added to the loan so this compounds over time. This is an expensive way of borrowing over the long term so make sure that your mortgage adviser explains the long-term effects of compounding interest.
There are other products such as RIO’s (retirement interest-only) mortgages that require monthly interest to be paid. These mortgages designed for retirement require full financial underwriting due to the mandatory payments. Some products allow voluntary payments.
Always take professional advice so your mortgage adviser can go over the most suitable products for you.
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How old do you need to be to qualify for later life mortgages?
The minimum age that you need to be to qualify for a later life mortgage is 55. This does not mean that all 55 year old’s will be able to take a later life mortgage against their home as other things need to be considered.
The loan to value is an important factor when taking out a later-life mortgage. For example, when you turn 55 and have only just become the correct age to qualify for a product, you would not get as much against your property as someone older, such as 75.
The reason is, that as the loans are available on a compounding basis, the longer the person has it, the more time there is for the loan to compound to a high level against the value of the property. As the 75-year-old is 20 years older than a person that just qualifies on age, statistically they would be expected to have the mortgage for less time before it would then be repaid. This allows the lenders to lend a higher amount when someone is older.
A professional later life mortgage adviser would be able to advise the amount that you may get based on your age and property value.
Some people aged over 50 will still qualify for standard mortgages if they are still earning.
Do you have to make monthly repayments on later life mortgages?
Most equity release / later life mortgages do not require you to make monthly mortgage payments. This is to the exception of RIO mortgages.
As the loan is on a compounding basis, if the monthly payment is not paid, it will continue to grow each year. Compounding interest is expensive as the balance plus the interest added incurs interest (rather than just the balance if it was a standard interest only mortgage).
Some later life mortgage lenders offer products that allow monthly payments to be made so the balance of the mortgage remains level (if the full amount of interest is paid monthly). The lenders offer this by way of a standing order or direct debit (your adviser would be able to confirm which) and some allow overpayments of up to 10% of the balance each year without incurring a penalty.
Not all products allow this so again, make sure you tell your objectives to your mortgage adviser if you arrange a later life mortgage.
Do you need a certain type of mortgage adviser for later life mortgages?
Your mortgage adviser needs a certain qualification as a minimum to advise on later life lending products. This qualification is CeRER in addition to their CeMAP certificate which allows advice on standard regulated mortgages.
Any mortgage adviser that is giving you individual advice on equity release products needs to have this so don’t hesitate to ask to see a copy of your adviser’s qualification when you are dealing with them.
Later life mortgage advisers should be doing these transactions regularly too so always best to look for an adviser with plenty of experience.
Can you still move house when you have later life mortgages?
Most later life mortgages are portable to a new property should you wish to move house (without the need to repay the mortgage and pay a penalty). There are usually conditions on this though such as the type of property that you are moving to, the value and the amount that you can port.
When you are taking out a later life lending product, you should make sure you ask about the conditions when it comes to porting the mortgage in the future as you may want to move.
If you had a certain type of future property in mind, it would be prudent to find out if it would likely be acceptable in the future. Rules can of course change but it would be wise to find this out in advance should you plan to do this at a later date.
Again, this comes down to having professional advice and telling your mortgage adviser your current situation and future intentions so they can recommend a product accordingly.
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What can the funds be used for with later life mortgages?
What you choose to spend the money raised from a later life mortgage on is down to you. For example, some people choose to refinance their current term mortgage to replace it with a later life mortgage with no repayment date.
Others may choose to raise money to make their properties more suitable for them. Some buy cars, holidays, give gifts to families and more.
The lender will usually ask the reason for the mortgage and what the money is to be spent. If you tell your mortgage adviser your intentions, they can look for a suitable lender for you.
The money raised from an equity release mortgage is usually tax-free but it may affect your benefits entitlement. Entitledto is good website for looking into this.
Are there downsides to later life mortgages?
In addition to some of the benefits of equity release / later life mortgages, there are also drawbacks.
One of these is the potentially large penalties if you were to pay off the mortgage early (for example, three years in you inherit money and don’t want the mortgage anymore). As they are ‘lifetime mortgages’ they are not designed for short term finance. Different products carry different early redemption penalties so your adviser would go through these.
The other main drawback is the compounding interest should you choose a product where you can’t (or decide not to) make monthly payments.
Over the long period, compound interest significantly eats into the equity within your home so having a later life mortgage for a long period will make a large difference to the amount of equity within the property as the years go on.
Your mortgage adviser would be able to tell you the balance at the end of each year in the future should you decide not to make monthly payments. The thing they can’t of course predict is your future house value so knowing your equity in the future is not possible.
To find out all the disadvantages of a later life mortgage and how they would affect you, speak with a professional later life mortgage adviser.
Conclusion
Later life mortgages can be a way to release money from your home or refinance it without an end date for returning the money. They do also have many things that need to be considered when taking them so they are not to be entered into lightly.
You should always take professional mortgage advice from a later life mortgage adviser when taking out a later life mortgage so they can assess the suitability for your situation.
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