Equity Release Scheme
It can be harder for pensioners to be offered mortgages once they reach retirement age. As such, retirement mortgages have proven to be an option for homeowners to release much needed equity from their homes. The length of the retirement mortgage can differ. It could be for the full remaining lifetime of the homeowner or it could be fir a fixed number of years.
It is important to keep in mind that retirement mortgages do come with an affordability check. This check includes an accountability for both investment and pension income.
There are a number of variations of retirement mortgages currently available in the equity release marketplace. Generally speaking, all of them function as a loan that is secured against the homeowner’s property. The homeowner can choose to either apply for the retirement mortgage during retirement or before retirement.
How Retirement Mortgages Work
The homeowner must make repayments on the retirement mortgage. These payments could be of capital and/or interest. The mortgage deed for the product will outline the specific amounts and frequency of payments required for each individual product. The payments made against the balance will have a direct impact on the outstanding and eventually, the final, balance of the loan taken out. If the homeowner opts to have the retirement mortgage last for their remaining lifetime, the full debt will be due when the home is eventually sold. This typically takes place when the last remaining homeowner either passes away or moves into long-term care.
As part of the affordability check, the homeowner should be prepared to verify all income when trying to access a retirement mortgage product. The kinds of income to be verified may differ by situation. The income verification could include P60’s if the homeowner is not yet retired and still working. If self-employed, the homeowner may need to provide the last 3 years of a trading account, pension forecasts, or SA302’s. Generally speaking, the homeowner should simply be prepared to verify all income sources.
The personal situation of each homeowner will ultimately determine the product most suitable. Other factors that should always be taken into consideration when choosing a product is how much cash is needed and how much equity is a comfortable amount to forfeit. Consideration should also be given to shopping around for the right lender, as each lender offers a variety of different products with various features and enhancements. Because every situation is different, retirement mortgages are not a one-size-fits-all product. Instead they are very specific to an individual homeowner’s needs and can be customized and tailored.
Retirement mortgages can be used for a variety of purposes including providing gifts to loved ones such as children and grandchildren, making improvements on property, purchasing a home, repaying an existing mortgage, paying down debt, or even building up savings in case extra cash is needed in the future. A retirement mortgage is suited for any homeowner who is looking to do any of these things or who wants to just fully enjoy their retirement years.