Money Advice Service

As you approach retirement, you might find it hard to renew your interest-only mortgage, even if you’re comfortably meeting your monthly repayments. But at the same time, you might want to unlock some of the equity in your home. Find out more about retirement interest-only mortgages, how you can get one and how it will be repaid.

What is a retirement interest-only mortgage?

A retirement interest-only mortgage is very similar to a standard interest-only mortgage, with two key differences.

  1. The loan is usually only paid off when you die, move into long term care or sell the house.
  2. You only have to prove you can afford the monthly interest repayments.

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.

In this way, they’re similar to types of equity release schemes like a lifetime mortgage, where you pay-off the original capital and possibly any interest when you die or move into long-term care.

However, with a lifetime mortgage you will either:

  • have a larger amount to repay at the end because there are no monthly repayments and the interest is rolled-up and added to the total loan value, or
  • make monthly interest payments and ad-hoc capital repayments during the term of the mortgage. This reduces or stops the effect of interest roll-up, but involves higher monthly repayments.

But, with a retirement interest-only mortgage, you only pay off the interest each month, so your monthly repayments will be lower.

This means you should be more likely to have something to pass on as an inheritance, or pay for long-term care.

Find out more about lifetime mortgages.
What is equity release?

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.

During the term of the mortgage, you will make monthly repayments to cover the cost of the interest on your loan.

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.

Advantages and disadvantages of a retirement interest-only mortgage

  • No need to demonstrate a suitable plan for repaying the mortgage.
  • 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 equity release.
  • Avoid having to downsize to a smaller property.
  • The loan term is not fixed.
  • Generally cheaper when compared to most Lifetime Mortgages.
  • You can unlock some of the equity in your home to pay off outstanding debt.
  • You will 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 and your loan to value ratio.

Should I choose a retirement interest-only mortgage

Looking for help?

Thinking about Equity Release? You can get free, impartial equity release and mortgage advice from Stepchange online or calling 0800 0274538.

If you’re coming towards the end of your current interest-only mortgage, talk to your lender to see if they will extend your mortgage term into retirement.

You can also talk to an independent mortgage broker about the next steps you could take.

If you’re thinking about an equity release scheme, you will need to speak to an independent adviser to work out your options.

Choosing a financial adviser.

Where can I get a retirement interest only mortgage

Retirement interest-only mortgages can be offered by traditional mortgage lenders, including high street banks and building societies.

Can I remortgage?

Yes, it’s possible to remortgage a retirement interest-only mortgage. But, you may have to undergo another affordability assessment if switching lenders or looking to increase the size of your mortgage, which could be difficult for some people.

How does remortgaging work?

This article is provided by the Money Advice Service.