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Mortgage Options for Pensioners

The concept of making mortgage payments after retirement age may be a new reality for some people. When looking at this situation, be aware that you can always get advice from a professional financial adviser to help you find the solution that’s right for you.

Decide Whether You Are Ready to Downsize

There was a reason why you chose the home you live in rather than any other but that reason may no longer apply. Children’s bedrooms may now be spare rooms and a train station nearby may be less important if you are no longer going in to work every day. The internet has helped make it possible to keep in regular contact with family and friends even over significant distances. If you are really attached to your home for reasons which still apply then it makes sense to examine your options for continuing to pay for it. If, however, time has changed your situation, then moving to a more affordable home may be an appropriate course of action.

See If Your Home Can (Help to) Pay for Itself

The rent-a-room scheme currently allows resident landlords to earn up to £4,250 per year tax free from letting out furnished accommodation in their own home. Although the tax-free allowance is for the whole year, there is no requirement that the accommodation be provided for the whole year. It is perfectly acceptable to provide summer holiday lets to tourists or language students or “Monday to Friday” lets to business people. There may be other ways to earn money from your home, for example by letting out your driveway as a parking space, although some of these ways may be subject to local authority approval and/or regulation.
Please note that HM Revenue and Customs practice and the law relating to taxation are complex and subject to individual circumstances and changes which cannot be foreseen.

Remember That There Is a Difference Between Retirement Age And Retirement.

The Equality Act of 2010 means that it is illegal for companies to force people to retire purely on the grounds of age. This means that in principle it is possible for people to go on working for as long as they want (or need) to. How feasible this is in practice will depend on a number of factors, including your overall health and the physicality of your job. If, however, you are close to paying off your mortgage, working a few years longer may be an effective solution.

Make Your Current Mortgage Work Harder

Keeping tabs on your family finances can go a long way to avoiding problems or at least catching them early and having more time to deal with them. One way to reduce the challenge of having to make mortgage payments in retirement may be to make overpayments while you still have an income from employment. This may require making savings elsewhere.

Get A Better Mortgage Deal

Another possibility may be to switch to a better mortgage deal. The key to this approach is to make the switch early enough for the savings to outweigh the cost of arranging the new mortgage. It’s also worth remembering that arranging mortgages requires paperwork on the part of the lender as well as the borrower. Therefore lenders may require borrowers to agree to a minimum mortgage term and/or minimum amount. Essentially this is to make sure that they earn enough from the deal to justify their initial investment of time, effort and money to set it up.

Consider Equity Release

In equity release schemes, a business essentially buys a share of your house and you continue to live in it until you die or move into a care home on a permanent basis. The advantage of these schemes is that you get cash up-front, which may help to pay off a mortgage. The disadvantage is that you may find the sum offered to be less than the open-market value of your home.
There are two types of Equity Release schemes: Home Reversion plans and Lifetime Mortgages. If you use a Home Reversion plan and sell all or part of your property, you cannot reverse the decision as you have sold a share or the whole of your property and you may only benefit from any future property growth if you have retained a share. If you have a Lifetime Mortgage scheme, the larger the amount you borrow, the more the interest rolls up and the less you may have left in equity as time progresses.
This is a Lifetime mortgage/Home reversion plan. To understand the features and risks, ask for personalised illustration.


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