How do I get a mortgage if I’m an older borrower?
Getting a mortgage can become much harder for someone closer to retirement. Think carefully before obtaining another debt against your house.
What’s specifically offered for you will depend upon your age, retirement age, earnings, term of mortgage and the amount of borrowing you want. In this article we focus on is there an age limit for taking out a mortgage and see whether you are in a position to still get a mortgage loan against a home.
Why does retirement age impact mortgage eligibility?
As you get older, you start to pose more of a risk to mainstream mortgage providers, which is why it can be trickier to secure a loan later in life. Why? This is usually down to either a decrease in income or your state of health.
After you retire, you will no longer be receiving a regular salary from your job.
Although you may have a pension to fall back on, it can be difficult for lenders to know exactly what you’ll be earning. Your income is also likely to decrease, which can affect your affordability drastically, this is why there has to be a maximum age.
Older people are also at greater risk of developing health problems and are less likely to survive the full mortgage term of a standard 25 – 35 year mortgage, which can further inhibit eligibility. Maximum mortgage age limits are in place to help mitigate this.
Maximum age determines mortgage term
Most mortgage lenders have an upper mortgage age limit for their lending (for the same reasons discussed above).
If you are approaching retirement, theoretically you have less time to put aside income to pay off your mortgage.
Even if you are below the maximum age for a mortgage, its term is usually determined by your age when you open it. If you have not retired yet, you will need to prove your expected retirement income. Ask your pension provider to confirm your current pension pot value and your expected retirement date.
People typically see their income peak during their 50s. Often this is due to them being established homeowners with respectable deposits.
In your 50s you are likely to have plenty of choice over how to plan your mortgage and should still be able to apply for the standard 25 year mortgage term.
There is no set rule for age limits on older borrowers mortgages, but most lenders tend to have their own cap, some of which can be as low as 55. Lenders are trying to be more open-minded and take into account that people are now living and working for longer.
Some high-street lenders will have age limits as high as 85. High-street mortgage providers tend to offer lower interest rates but they may not offer as much flexibility.
Smaller lenders, like local building societies or private banks, can offer more flexible lending criteria and some have no upper age limit at all. The interest rates may be higher, but our mortgage brokers can help you with all mortgage advice and have access a large pot of lenders and assess your options to find the right mortgage one for you.
Alternatives for later life lending
Equity release – Whole of life mortgages
An equity release mortgage is a mortgage you put in a property in which you own and have equity to free up money you can use on another venture. You stay in the property but keep no monthly capital and no interest payments. The interest was automatically transferred to the mortgage balance and the loan lender only made money back when the unit or its properties purchased was sold, normally once you were gone.
Older People’s Shared Ownership (OPSO)
This government-backed scheme isn’t a traditional mortgage, but it does offer a way for pensioners to buy a home. It allows you to buy a portion of a property and pay rent on the remainder. You can only buy up to a 75 per cent share, and once you reach this threshold, you won’t pay any more rent.
Retirement interest-only mortgages
These work in a similar way to standard interest-only mortgages and do not have a maximum age, you only pay the interest each month for the mortgage payments. However, you only repay the outstanding balance once you die, go into long-term care or sell the house. Retirement interest only mortgage are becoming increasingly popular.
Frequently Asked Questions – Older borrowers
Do I need life insurance for a new mortgage deal?
We would always recommend putting life insurance in place with any mortgage deal, whether it was retirement mortgages(interest only mortgage), lifetime mortgage or any form of residential mortgage. It usually makes sense to consider taking out Life Insurance to cover your mortgage loan it is not normally compulsory.
It is important to have a think about how your loved ones would cope with the mortgage debt if you were to pass away.
- Could they meet the monthly mortgage repayments?
- Would they have sufficient income to maintain such a mortgage?
Given the cost of Life Insurance if you have a partner or family it is often worth considering irrespective of whether it is compulsory or not.
What will I need to show my mortgage provider?
You will need to prove you have adequate income to cover the repayments post-retirement in the same way as you would if you were working full-time.
You should expect to show your bank statements and a statement that confirms your pension payments or evidence that you are receiving a pension.
Your lender will also look at your regular expenditure to assess an affordable borrowing amount.
If You’re a few years away from retirement, you will need to show a statement with a forecast of your income in retirement.
If you are over 10 years away, lenders may only want to see whether you are contributing to a pension(s). If you’ve had different jobs over the years, check back through your files to check you have details of all the different pension schemes you may have been contributing to, this will help you getting a mortgage.
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