For the majority of people approaching retirement the main aim is to enter this time of life mortgage free, and in an ideal world this would be the case. Since the mid 1990s house prices have climbed steadily and this has forced people to borrow more. Credit has become readily available and much longer mortgage terms are now common. First time buyers are now regularly requesting mortgages that run over 30 or 40 years. This improves the affordability as the longer the term, the lower the monthly payments. Another aspect is the average age of first time buyers has slowly increased, larger deposits take longer to save after all.
The downside of this is that many people will have to deal with the prospect of a much longer working life if certain steps aren’t taken. There are several ways that these factors can be addressed though. As a mortgage advisor you see all the terms and conditions associated with the loan, and there are often options available that can help avoid this scenario.
Over-payments. Many lenders allow increased payments to be made without incurring ERC’s (early repayment charges). This is a great way to lower the amount owed. Not all providers allow this option so making sure this is acceptable is imperative.
Reducing your term. Being able to afford your mortgage is one of the most important requirements for a lender. A longer term may allow your first purchase to be successful but there is no reason it can’t be shortened once incomes increase. The majority of fixed deals last for 2 or 5 years so we always suggest allowing us to calculate if a shorter term is affordable at a later date.
Pensions and Savings. Hoskin Financial Planning also has a team Independent Financial Advisors that are able to advise customers on pensions and wealth management. Long term saving plans and pensions can be used to build funds and both are a great way to reduce a mortgage later in life. With the right advice it is often possible to release 25% of a pension pot at the age of 55, this will be tax free and can make a huge reduction to the balance of a mortgage debt. These options will obviously reduce the amount of funds available thereafter so it is important to receive the correct advice if you are considering this.
Equity Release. Often people do not have the luxury of private pensions and savings and many can find themselves dependent on state pension only. There is also a good chance that at this point the home could have some serious equity within it. Hoskin Mortgages are able to provide expert advice on Equity Release and these products can be a solution to providing tax free cash to clear an existing mortgage. Equity Release does have a long term financial attachment to it and will affect the amount of funds left for inheritance. An advisor is here to help you understand all the terms and conditions and give advice if this is an option that is worth considering.
R.I.O Mortgages. Many borrowers find themselves reaching later life with interest only mortgages in place. If the correct planning was not taken it can come a huge shock when the lender writes to discuss repaying the loan. If savings and investments are not there to make the repayment a R.I.O (Retirement Interest Only) Mortgage can be used. This is a mix of interest only and equity release and again depends on the equity within the property. Monthly payments are made that cover the interest part of the loan and the capital is settled when the house is sold or the borrower dies, or goes into long-term care. It is often possible to repay part of the loan as well as the interest. This results in larger payments but also means more equity is left in the property. Several different lenders currently offer these products and as with Equity Release it important to receive the correct advice.
Managing your mortgage efficiently can be a daunting task. With more lenders returning to the lending market the amount of products on offer is vast. As you can see from the choices above there are many ways to try and achieve the goal of a mortgage free retirement. Hoskin Mortgages is part of Hoskin Financial Planning who are Independent Financial Advisors and Mortgage Brokers. As a whole of market broker we speak to over 100 lenders operating in the U.K market. Regardless of your situation our aim is provide the cheapest and most suitable product available to you.
If you are approaching this time of your life and have any questions regarding your mortgage options then please get in touch. Initial enquiries are free and you are under no obligation.
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