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As a pensioner you usually have a limited amount of monthly income you must live on. You may have much equity in property assets, but lack enough income to sustain a comfortable retirement. It is happening to a lot of new retirees given the changes in pension’s legislation & the changing demographics of the new retired generation. More individuals are working longer than typical retirement age for fear they cannot afford their retirement. There is good news if you own your home. Any homeowner can take advantage of equity release products including lifetime mortgages and other forms of pensioner mortgages.

The traditional mortgage in retirement is changing to accommodate the needs of retirees. When the traditional residential mortgage lender has been reigning in their retirement mortgage it has been left to the equity release industry to be seen to be offering more flexible options, even when interest or capital and interest need to be repaid during the life of the loan. There are certain considerations that will affect your decision and these will be assessed here.

What Constitutes a Retirement Mortgage for Pensioners Today?
Mortgages for pensioners are a lot like interest only lifetime mortgages; however, there are some differences. These pensioner mortgages are designed to require a repayment throughout the loan until it is paid off. It provides you access to cash; however, you also need to have enough income to cover the monthly costs. Retirement mortgages come in various formats & designed to suit the various needs of retirees.

From the traditional residential mortgage market are the standard interest only & capital & interest mortgages which are still available, albeit in smaller quantities. Interest only lifetime mortgages also fit the retirement mortgage bill where you are able to select the monthly payment you make based on the amount of the loan and qualification criteria of the mortgage provider you choose. Many of the mortgages for pensioners are also available with flexible voluntary repayment options. This allows you a little extra freedom with regards to the payments you will make as you can decide when you wish to pay any lump sums off & also how much subject to the 10%pa maximum cap.

The Qualification Process Involved

To understand whether you qualify for equity release, use our free smartER research tool.

Like all mortgages for pensioners including interest only lifetime mortgages, there is a qualification process. It begins by obtaining financial advice and then filling out an application for approval where you share some personal details about you including your age and home. Mortgages for retirees are based on your age and the average life expectancy of a healthy adult plus the property value.

Following the Mortgage Market Review (MMR) in 2014, mainstream mortgages are being scrutinized more than ever and eligibility factors have been tightened. Therefore, with the choice of mortgages for pensioners has become more customised in determining which schemes are even eligible for certain retirees & their financial standing.

Property value determines what your home’s equity figure is; therefore, it is the value used to determine the equity available for release in your home. Since age is a factor it means you need to be old enough to take out this type of retirement mortgage, but also young enough to ensure you can still make the monthly interest or capital and interest payments required for the loan.

One difference between lifetime mortgages and pensioner mortgages is age. It is possible to take out a residential mortgage as late as 60-65, but most lenders require the funds to be returned by age 75. At most this gives you 10-15 years to repay the mortgage. You also need to ensure you have the income to support the mortgage until age 75 also which can be problematic for most. Failing eligibility for this you have the back-up of the lifetime mortgage whose options include making repayments back to the lender or not (roll-up). These have no maximum application age as Aviva equity release plans will accept applications even at 100!

The Changing Landscape for Pensioner Mortgages
Mortgages for pensioners have changed not only to become more flexible but also to meet retirees’ needs for today. With changes come some disadvantages. Mortgages for pensioners are difficult to get. The mortgages requiring interest only or capital and interest repayment are extremely difficult to find and qualify for because they because they tend to be shorter term loans due to age & affordability can be difficult to prove based on retirement pension income alone.

Based on older ages the capital and repayment mortgage types are more expensive and difficult to afford. The Mortgage Market Review has also been tightening up what is allowable for mortgage criteria, which is affecting the overall pensioner mortgage. Some products have completely disappeared, while others are slowly disappearing from the market. The retirement mortgage market is therefore becoming a sophisticated animal and therefore specialist advice should always be obtained from a later life mortgage adviser.

A part of the changes in the mortgage market as a whole has been due to the recent past. With more foreclosures and two recessions, it has made banks more worried about repayment options. Mortgages for pensioners focus on the ability to make monthly payments where interest is repaid and a balloon payment can be made at the end. With flexible options the principle balance can be repaid now without penalty which takes care of the large balloon payment in 10 to 15 years. However, most banks are focusing more on age than the ability of a person to repay the loan throughout the years and in the end.

Pensioner mortgages at least take care of the fact that those in an older age group still need financial assistance. They will only qualify homeowners who have the income to support this type of retirement mortgage up to the age of 75. It is not ideal and it is unaffordable for many. Luckily, there are other equity release products that can extend beyond 75 if necessary. It is possible with more flexible options to roll over mortgages for pensioners into roll-up lump sum lifetime mortgages. Seek independent retirement mortgage advice if you are looking to release equity and you are over the age of 55.

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