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UK state pension: Pros and cons of loan options if pension amount not enough

LATER life borrowing is becoming big business as we live longer, work longer and struggle to make ends meet through longer retirements.

REPAYMENT MORTGAGES

RETIREMENT INTEREST-ONLY 

EQUITY RELEASE 

The industry is now waking up to the fact that unlike the old days, when people paid off mortgages well before retirement, many now cannot clear loans before giving up work. So lenders are bringing out flexible products to suit the changing needs of borrowers, with more appealing interest rates. 

Nationwide is one of the latest lenders to offer a full range for older borrowers, adding equity release lifetime mortgages to existing retirement repayment loans and retirement interest only products, with rates from 2.74 percent. 

Jason Hurwood, Nationwide’s director of home proposition, said: “We are moving away from working for one rm, retiring and pottering in the garden for a couple of years. People are seeing retirement as a rebirth.They want to explore, travel, take up a new hobby. 

“It has taken a while but things have really improved.We launched later life lending last April for existing members. We expanded it inAugust and there’s more to come.” Nationwide says there are three main types of later life borrowers:

1. Those with interest-only mortgages and other debts, who have no repayment plan and want a way to service that debt.

2. People who want money for essential things such as property maintenance.

3. The smallest group, wanting cash for holidays, new cars and fun things. 

Retirement specialist Just Group, which offers equity release products, is offering a Just For You lifetime mortgage that’s flexible. It lets borrowers pay all or part of the monthly interest and allows payment holidays of up to three months each year. Paul Turner, their managing director of retirement lending, said: “It’s simpler, more flexible and offers more scope to meet needs of clients.” 

OPTIONS FOR OLDER BORROWERS

REPAYMENT MORTGAGES

These are traditional-style loans where you repay interest and capital. All building societies offer mortgage lending up to the age of 75. But many have now upped their age limit to 80 or 85. Some have removed their age limit, including Bath, Ipswich and Saffron. Societies that will lend up to age 85 include Leeds and Nationwide. You do need to pass the Financial Conduct Authority’s stricter rules on affordability to continue with a repayment mortgage into later life. 

You have longer to repay a loan and the flexibility to change the loan to keep up with your needs as you get older.

Repayments have to be met each month and the debt must be repaid by the end of the term. It could take a big chunk out of pension incomes.

RETIREMENT INTEREST-ONLY 

Typically, you pay just interest on a home loan and don’t reduce the debt, which is paid off when the home is sold or you go into care.

 You can live in your home for as long as you wish and just pay the interest on your loan. You will bene t from any increase in the property value and you only have to repay the original loan.

If your financial situation changes, you may struggle to afford the interest repayments. Interest rates are very low now but could rise. If the property market dips, there is a risk there may not be enough equity in the property to clear the debt in full, and you or your dependents could have a debt to clear.

EQUITY RELEASE 

This unlocks the value of your home and can be a way to clear outstanding mortgage debt and boost your income. You need to have a chunk of equity in your property to qualify. You typically get a plan worth up to around a third of the value of your home. You don’t need to make any repayments, the interest on the loan rolls up over the years. There are new, more flexible products, offering borrowers ways to keep the interest paid lower, such as paying interest monthly and paying off chunks of the loan. 

If you don’t make any repayments this can be a cost-free way of remaining in your home – usually for the rest of your life or until you go into care. 

It will reduce the value of your estate and can affect your entitlement to state benefits. The interest adds up over years, although most plans guarantee you will never owe more than the value of your property. Once you have taken the cash out, you will have limited options. 

OPTIONS FOR OLDER BORROWERS

REPAYMENT MORTGAGES

RETIREMENT INTEREST-ONLY 

EQUITY RELEASE 

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