Over 60s

Alternatives to an Over 60s Mortgage

There is no denying that lenders are taking a greater risk with borrowers who are nearing or have passed the age of retirement. Based on this higher risk, most lenders will aim to achieve a higher rate of return from these mortgages. Whilst there is a call for lenders to be competitive, these types of mortgages are unlikely to be the cheapest on the market and it is prudent to consider alternatives to financing a property.

A classic example would be to look at the range of mortgages that are aimed, and indeed favour, the older borrower. The generic term for this type of mortgage is a lifetime mortgage or an equity release plan. These types of mortgage plans commonly offer lump sums or regular payments that can supplement income and will generally become more cost effective, the older the borrower becomes.

There are also specific home owner loans available which are often not linked to the age of the borrower. Generally speaking, home loans are not as cost effective as mortgages. However, with a particularly costly mortgage such as an over 60s mortgage, it may be that a home loan is not wildly different.

For example, a fifteen year mortgage with an interest rate of 6.5% would result in a total payment of just over £31,000 on a £20,000 borrowing. The same amount borrowed over 10 years with a home loan at a rate of 8% would result in a total of just over £29,000 being paid back. Inevitably, the monthly payments with the latter would be higher, but overall the borrower would be better off with a home loan, in these circumstances.

Standard Mortgage or Equity Release

As an older borrower, one of the main questions that you must ask yourself is whether you should be looking at a standard mortgage, albeit over a shorter length of time, or whether you should be considering a home equity release scheme.

Home equity release schemes fall into the general category of being lifetime mortgages and are dealt with in more depth in a specific article. Although home equity plans are very popular and for many people an excellent way to allow borrowers to have the benefit of the equity that has built up in property without the need to actually move house or to downsize, these plans are not for everyone.

For many people, a home equity plan can be both expensive and place unnecessarily onerous restrictions on the owner if they decide to move or sell the property, in later years. For those who are wary of taking out a home equity plan, a standard mortgage aimed at the needs of pensioners may offer the necessary cash and flexibility.

Low Cost Over 60s Mortgages

Lenders are now able to offer a range of products specifically aimed at pensioners who do not have regular earned income. Essentially, the main difference is that the lender will take into account the pension income as a means of calculating how much can be borrowed. For example, the figure used to calculate the total amount that can be borrowed is usually four times your pension income rather than your employed income. Bear in mind that some lenders will take into account other independent income such as rental income or other income from investments.

Cheap mortgage deals are often available to all borrowers, regardless of age, and the same tricks of regularly re-mortgaging can be used by pensioner mortgagees, as easily as first time buyer mortgagees. The devil really is in the detail with these low cost mortgages and pensioners generally have greater restrictions and options in terms of being able to over pay or to obtain additional financing. In practice, this means that older borrowers often miss out on some of the best deals. Always use a reputable all of market broker to assist with finding the appropriate mortgage for your own individual circumstances.