Quick Guide to Later Life Lending

23 Feb
later life lending

Quick Guide to Later Life Lending

Later life lending is the umbrella term for any mortgage product aimed at homeowners over the age of 55. The flexibility of these mortgage solutions makes them suitable for various purposes, such as:

  • Offering a feasible alternative to utilising other assets.
  • Providing a means to supplement retirement income.
  • Unlocking capital for various purposes such as holidays, cars, home improvements, or gifting money to family.
  • Allowing for the repayment of an interest-only mortgage acquired in the past.
  • Facilitating the restructuring of old debts.
  • Supporting retirement planning efforts.

Later life lending can generally be split into 3 types of mortgage products:

Standard Mortgage:

Available from banks and building societies, traditional mortgages involve an affordability assessment and require individuals to commit to set monthly payments.

  • They come with a fixed term, typically up to retirement age, and individuals can choose between capital repayment and interest-only options:
    • Capital repayment involves paying both interest and a portion of the capital each month, ensuring no outstanding balance at the term’s end provided all payments are made.
    • Interest-only allows individuals to pay only the interest monthly, necessitating repayment of the outstanding balance at the term’s conclusion.
  • Fixed and variable interest rates are available, with fixed rates lasting between 2 and 10 years and variable rates tied to a lender’s standard variable rate or the Bank of England base rate.
  • Overpayments of up to 10% of the capital balance annually are often permitted without early repayment charges (ERCs).

Retirement Interest Only (RIO) Mortgage:

Like standard mortgages, these require an affordability assessment, but individuals only need to make interest payments each month.

  • The outstanding balance is repaid upon the last applicant’s death or entry into long-term care, usually through property sale.
  • Interest rates can be fixed for a specified term or for the lifetime of the mortgage, with corresponding early repayment charges.
  • Overpayments against the capital balance are typically allowed annually without incurring early repayment charges.

Lifetime Mortgage / Equity Release:

Affordability calculations and monthly payments are not required with lifetime mortgages. Instead, interest is accumulated over the loan term, and the total outstanding balance is repaid upon the last applicant’s death or entry into long-term care, usually through property sale.

  • A “no negative equity guarantee” ensures the owed amount does not surpass the property value.
  • Interest rates are set at the mortgage’s outset and may have either variable or fixed early repayment charges.
  • Flexible features include the ability to make payments against interest or capital, drawdown options for initial lump sums, inheritance guarantees, and downsizing protection.

Navigating later life lending is complex, but with Impact Specialist Finance, you have a trusted partner. Our dedicated team of experts is committed to guiding you through these intricacies. Contact Impact Specialist Finance today for reliable advice and tailored solutions to help you achieve your financial goals.

The information provided reflects our current understanding of legislation and regulations, subject to potential changes. It may not encompass all options under a specific product and is not exhaustive in considering individual circumstances or future tax law alterations. Clients are advised to seek personalised financial advice. Impact reserves the right to share your information with a third-party Equity Release Partner.