Unlocking Financial Freedom: Understanding Later Life Lending

What is later life lending?

Whether you are looking to pay off an existing mortgage, release some equity from your home to spend on yourself or loved ones, or even to move home, later life lending could help. Later life lending director Darren Johncock is here to explain what options are available. 

Later life mortgages and equity release solutions are designed exclusively for clients aged 50 or over. It is a way to borrow money in retirement by securing a loan against your home whilst continuing to live there. The three main types of finance available are a later life residential mortgage, a RIO (Retirement Interest Only) mortgage or a lifetime mortgage, which is often referred to as an Equity Release mortgage.

Previous clients have used a later life lending for:

  • Pay off an existing mortgage
  • Inheritance tax planning and gifts
  • Boosting income
  • Fund home and garden improvements
  • Pay off remaining debts
  • Fund once-in-a-lifetimes holidays and large purchases.

Equity Release

One of the most common forms of later life lending is called Equity Release. It is an umbrella term for a range of products that allow homeowners to access the cash (equity) tied up in their homes. These mortgages are generally available to people aged over 55 and allow money to be taken out as a lump sum, several smaller amounts, or a combination of both. The loan is secured against your home and is similar to a standard residential mortgage, except you don’t have to make any repayments towards the loan. The lender is paid back once you remortgage, sell your property, move into long-term residential care or upon your passing.

Retirement Interest Only (RIO)

Retirement Interest Only mortgages, also called RIO mortgages, are products designed for older borrowers aged 50+ who might struggle to meet the lending criteria for a standard mortgage, typically due to age.

The loan is taken out against the value of your property, however, as the name suggests you only pay the interest each month and no repayment is made towards the capital itself. The mortgage is paid back once you remortgage, sell your property, move into long-term residential care or upon your passing.

For clients with a secure retirement income, for example a pension, RIO mortgages can be an excellent solution for older borrowers. As you service the interest during the lifetime of the loan there is more capital remaining in the property to pass on through inheritance, which is considered to be a significant benefit when compared to an equity release mortgage.

As lifetime mortgages are only available through mortgage advisers, it’s important to speak to an expert who’ll be able to explain both options thoroughly in line with your plans moving forward.

Residential mortgages for older borrowers

Essentially, a later life mortgage is a normal residential mortgage for an older borrower who may struggle to arrange borrowing with traditional high street banks. However, some lenders are more flexible in relation to the mortgage term and in some cases, lenders may even allow the mortgage term to end past a client’s 100th birthday!

A later life mortgage is similar to a RIO mortgage, because the loan amount you can borrow will be based on your income. They can be arranged on an interest only or capital repayment basis, and the amount you can borrow will be based on your income, taking into account all sources including any current and future pension income.

When compared to a RIO mortgage, the main difference is that later life mortgages still require a mortgage term, however, a significant benefit of later life mortgages are that the rates tend to be lower as these are classed as standard mortgage products.

With multiple options available for older borrowers, now is the time to find out more information. Call our expert team 020 3903 9875 or contact us via our online form.