Your options for borrowing in retirement

How to boost your finances in later life

When it comes to borrowing in retirement there are a few options to choose from. Later life lending products include equity release and retirement interest-only mortgages (RIOs). Other options include arranging a loan, using a 0% credit card or borrowing from family.

In this article we will discuss some options for borrowing in retirement to help you decide what might work best for you, including:

• Equity release
• Retirement interest only mortgages (RIOs)
• Remortgaging
• Arranging a loan
• Borrowing from family and friends

Equity release

If you want to access some of your property wealth to boost your retirement income, equity release has helped millions of homeowners to do just that. 

You will initially choose between a lifetime mortgage and a home reversion plan. Both of these allow you to unlock some of the tax-free money tied up in the value of your home to spend in almost any way you wish. If you have a mortgage or other secured loans when you apply for a plan, you must pay these off with some of the money you unlock.

Your equity release plan typically comes to an end when you pass away or move into long-term care, at which point your home is put up for sale to settle your plan. Any money left over from the sale of your home is then paid to you or your estate.

Lifetime mortgages are a form of loan available to over-55s and are the most common form of equity release. You continue to own 100% of your home and have no mandatory monthly repayments to make as the interest is added to your loan amount each month. You can reduce or prevent the interest that accrues by making voluntary payments or by arranging an interest-only equity release plan.

Home reversion plans are available to over-60s. They involve selling all or some of your home in exchange for a tax-free cash lump sum. The amount you receive will be less than the market value of your home and you will continue to live there for the rest of your life as a tenant, but paying no rent. 

Of course, there are pitfalls to equity release which you should consider, including how a plan will reduce the value of your estate and the amount of inheritance you leave. 

If you speak to our selected advisers, they can answer all your questions and search for the best plan for your needs. They’ll also check if one of the alternatives to equity release could be a better financial option to ensure you are making the right choice for your needs.

Want to know how much you could unlock from your home? Check your eligibility and get your free quote now!

Retirement interest only mortgages (RIOs)

A retirement interest only mortgage (RIO) is similar to an interest-only lifetime mortgage, in that they allow later life homeowners to unlock tax-free money from their home’s value and make monthly interest repayments on the loan.

The capital is typically repaid when you pass away or move into long-term care, when your home is put up for sale.

There is no fixed term with a RIO, but the condition is that you will have to keep up with the interest payments for the life of your plan. As this is typically a lifetime commitment, you’ll need to be absolutely sure that you can afford these payments for the rest of your life.

If a lifetime of monthly mortgage payments sounds off-putting, consider an interest-only lifetime mortgage. These allow you to make the monthly interest payments for as long as you choose. If you stop making your payments then the interest begins to roll up each month and your plan becomes a standard lifetime mortgage.

Our selected advisers can help you explore RIOs and interest-only equity release plans. Call 0808 178 3055 or request a call back from our friendly team here to arrange an appointment.

Remortgaging

If you have a current mortgage deal expiring soon and can still afford the monthly repayments in retirement, then you could consider remortgaging to a retirement mortgage.

One issue with remortgaging in later life is that lenders usually have an upper age limit, so your new fixed-term could be determined by your age. For example, if their maximum age limit is 80 and you are 68 then you may need to clear the mortgage in 12 years.

If affordability checks are a concern for you, then your existing lender may be able to offer you a new deal without carrying out a full affordability check. This could be ideal if you simply want to boost your retirement finances by moving to a better mortgage deal. 

If you do need to borrow more money as part of your remortgage then you will need to pass the lender’s affordability checks. You should also consider that you risk losing your home if you do not keep up with your mortgage payments.

To find the best available deals, an independent mortgage adviser can search the market to find an affordable option that accepts homeowners in retirement. 

Arranging a loan

Don’t rule yourself out of arranging a personal loan simply because you are retired or receiving a pension. Lenders want to be able to see that you can afford the monthly repayments for the life of your loan, so their main concern is your income. 

Lenders will consider your income from any part time jobs you have, together with your pension income. This includes your work pensions, any private pensions you have and the State Pension. They’ll also consider any rental income you receive from investment properties. Finally your credit score will be reviewed.

If you only need to borrow a small amount of money then you can also consider a credit card. With many 0% deals on interest, balances and purchases, it may work out better for short-term borrowing.

Borrowing from family and friends

If you are in need of a cash loan and have family members who may be able to help you, do consider asking them. Yes, the thought of asking to borrow money from our nearest and dearest can be off-putting, but what if it was the reverse situation? Wouldn’t you want your loved ones to talk to you if they were in need?

Having a conversation about your financial situation might lead to an offer of help, especially if you have an urgent need for the money. 

Borrowing from your family won’t just save you money in interest, it could protect their inheritance too. As equity release and RIOs both impact the amount of inheritance you leave, your family could be keen to help you out to prevent this from happening.

Talk to a friendly adviser

We hope this guide to your options for borrowing in retirement helps you understand what might work well for you. However, when it comes to your retirement finances, nothing compares to speaking with a qualified adviser.  

Our selected advisers are there to help you decide if equity release or a retirement interest-only mortgage could work for you. 

They’ll also check if any of your other financial options could be a better option for you right now. If there is a more suitable alternative to equity release, they will always tell you. 

Call the team today on 0808 178 3055. Or request a free callback here for a time that is convenient for you.

About Clare Yates. With over a decade’s experience writing about later life financial planning, Clare offers a wealth of knowledge about equity release, pension annuities, wills, LPAs and more. When she isn’t writing, Clare likes to spend her time baking and going on walks with her husband, two children and their rescue dog. Follow Clare on LinkedIn