Martin Lewis gives advice on overpaying on your mortgage
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With the problems homeowners are currently facing, many will be researching their options, and for retirees, these options are much more limited. One option available to those over the age of 50 is a retirement interest only mortgage.
A Retirement Interest Only Mortgage involves repaying only the monthly interest accumulating on the loan while, providing these repayments are made on time, the balance remains the same.
This is unlike a traditional residential mortgage, where repayments of both the capital and interest are made over an agreed plan length to reduce the mortgage balance.
Mark Gregory, Founder and CEO of Equity Release Supermarket, spoke exclusively with Express.co.uk about what a retirement interest only mortgage involves, to help those researching their options.
In the current climate of soaring mortgage rates and general overall living costs, customers may be finding it a struggle to make the monthly repayments on their existing capital and repayment mortgages.
Retirement interest only mortgage rates are also soaring, and many products have been withdrawn over the past few weeks, so choices are now more limited than ever, however Mr Gregory explained what options retirees have.
He said: “By using a later life lending product such as a retirement interest only mortgage, homeowners over the age of 50 can still access the money that has built up in their home.
“They could use these funds to pay off an existing fixed rate capital and repayment mortgage. Reverting to paying the interest only, bear in mind – any existing fixed rate mortgage is likely to have early repayment charges.
“Doing this essentially transfers the loan onto a lifetime basis, where you are not tied into a regular repayment plan, only paying the monthly interest on the loan.
“If you do choose to pay optional payments towards the outstanding balance of the loan, these can be smaller than the amount that may have been paid on a previous capital repayment mortgage.
“So, by switching to a retirement interest only mortgage, you can alleviate financial pressures and help make significantly monthly savings.”
He suggested Britons always seek advice from an equity release specialist first who can provide advice from the whole of the market, as a lifetime mortgage extends the term and can result in more interest being charged over the lifetime of the plan.
Navigating the options available for people in later life can be complicated, especially as many of those approaching retirement age were most likely affected by the issues caused by the 2008 credit crunch and the tightening of lending criteria that followed.
Mr Gregory continued: “We are seeing an increasing number of over-55s turning to later-life schemes to access money to help fund their retirement.
“Having only been introduced by the FCA in 2018, retirement interest only mortgages are still a relatively new financial product and so it is understandable that many who are able to access these mortgages may not have the clearest understanding of what they involve.
“With the aim to give retirees more financial freedom, similarly to other equity release schemes, there is no fixed term. The mortgage only needs repaying in full upon death or having moved into long term care.”
One way that retirement interest only mortgages differ to equity release is that they do have to undergo a full affordability assessment first.
This assessment reviews one’s monthly income and expenditures to see whether the new RIO mortgage is affordable.
For a joint mortgage, for both to qualify, it must be evident to the lender that they can both afford the mortgage in their own right, should either party die. Needless to say, that a good credit record will also be a mandatory requirement.
Mr Gregory explained that as with any significant financial decision, the decision to take out a retirement interest only mortgage should be carefully considered with the assistance of an expert.
He would always recommend conducting a full review of one’s finances first to establish their different options with an adviser.
To conclude he said: “Retirement interest only mortgages allow retirees to address their finances, either before or when they are already in retirement. This can be for a number of purposes – capital raising for home improvements, repayment mortgage or loan and credit card debt, these are all common reasons to raise extra cash.
“Borrowers retain 100 percent of the ownership in their home and are able to withdraw the money in a lump sum. Available to homeowners over 50, a retirement interest only mortgage brings the potential advantages of being able to downsize or purchase a new home and potentially leaving a greater inheritance than you would using equity release.”
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