What is a retirement interest-only mortgage?

A retirement interest-only mortgage is only available on your main residence and is very similar to a standard interest-only mortgage, with two key differences.

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The loan is usually only paid off when you die, move into long term care, or sell the house.

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You only have to prove you can afford the monthly interest repayments.

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While there’s no minimum age requirement, retirement interest-only mortgages are generally aimed at older borrowers, such as the over 55s, over 60s and pensioners who might find them easier to qualify for than a typical interest-only mortgage.

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In this way, they’re similar to types of equity release schemes like a lifetime mortgage, where you pay off your debt when you die or move into long-term care.

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How will I repay a retirement interest-only mortgage?

There are two parts to paying off a retirement interest-only mortgage. The interest and the outstanding capital.

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During the term of the mortgage, you’ll make monthly payments to cover the cost of the interest on your loan.

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The outstanding capital you still owe will be paid off when the house is sold, you die, or when you move into long-term care.

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Advantages and disadvantages of a retirement interest-only mortgage

There are a few reasons why a retirement interest-only mortgage could be a good option for you:

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• more likely to have something to pass on as inheritance

• no problem of interest roll-up – which is when interest builds and builds - like with lifetime mortgages

• providing you can continue to pay the interest you'll avoid having to sell your home 

• generally cheaper when compared to an interest roll-up Lifetime Mortgage
   

But there are some things that could mean you need to look at alternatives:

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• you’ll need to pass the mortgage affordability checks to prove you can afford the interest only repayments

• your home will be sold off to repay the loan when you die, enter long-term care or sell your home

• your home is at risk if you do not keep up the repayments

• the amount you can borrow is based on your retirement income.
   

Should I choose a retirement interest-only mortgage?

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If you’re coming towards the end of your current interest-only mortgage and want to stay in your home, talk to your lender to see if they’ll extend your mortgage term into retirement.

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You can also talk to North Star Mortgage & Financial Services Ltd about the next steps you could take.