From the heady mortgage years of the 1990’s & 2000’s many retired people are now finding themselves in a quandary…’how do I repay my interest only mortgage by age 75?’
Given the dilemmas & problems experienced by retirees in today’s changing world, this is probably one of the most financially challenging issues they face.
This is a property that could have been their initial marital home or even where their children were brought up & therefore hold many memorable attachments to show for their working lives. So now having to sell the property in retirement now to meet a decisional mistake from many years ago, could weigh heavily on one’s shoulders.
Unless these funds can be raised, pensioners will face the ultimate disruption to their lifestyle which could be the forced sale of their property.
So why are lenders requiring mortgages to be paid off by age 75?
Many people are asking ‘can have a mortgage in retirement’. The answer is yes & there are a few options available; the decision made however could be crucial.
This is down to how the initial advice was provided & possibly changes in mortgage lending criteria since. We have now all heard of & possibly evidenced the problems that the low cost endowment policy caused the interest only mortgage market. This has left many people with endowment shortfalls reaching retirement & still requiring capital with which they need to pay off their mortgage.
Another reason maybe that pension funds have not lived upto expectations & retirees relying on the tax free lump sum element have now insufficient pension pots to meet their mortgage repayment.
Many people in the past as a short term measure, such as divorce or business related problems were switching to interest only mortgage to save on their monthly outgoings in order to remain in their home. However good at the time, the initial savings could lead to much bigger issues further down the line if the repayment vehicle has not been addressed.
The recent FSA review of the interest only mortgages has led many lenders now to change criteria on the repayment vehicle & repayment date. Certain lenders such as Coventry Building Society would rely on the sale of the property as an acceptable means of mortgage repayment. This may have been good idea at the time, however maybe due to a change in plans; the sale of the home is not now an option with them.
We have had the recent news that Halifax will need to evidence that a repayment vehicle is in place whenever an existing interest only mortgagor takes a new product from their mortgage range! Not only that but it must be on track to meet target.
We have also had instances of people thinking they could apply for a further advance, only to find the lender is now insisting on the mortgage changing to capital & repayment. Due to the relatively short term now permitted; usually by age 75 the costs of this could be extortionate & unmanageable.
There could be many more reasons that people are now facing upto the fact that they must shortly clear their mortgage; the question is how?
The answer would lie in a number of factors which can only be determined by a suitably qualified independent financial adviser. They will seek to understand the causes of the problems & seek redress should poor advice been initially provided. From there the equity release adviser would consider options such as an interest only lifetime mortgage, equity release, home reversion scheme or sale of the property etc.
These topics will be covered in the next article ‘What are my options if my mortgage has to be repaid by age 75?