Retirement Mortgages Compared To Lifetime Mortgages
If you are deciding on the best way to release equity from your home, you might find it interesting to compare Retirement Mortgages with Lifetime Mortgages.
Differences between Retirement Mortgages and Lifetime Mortgages
There is a difference between the way that interest is calculated on a Retirement Mortgages when compared to a roll-up Lifetime Mortgage:
- The interest on a Retirement Mortgage typically starts at a fixed rate which is guaranteed not to change for a set period of time – normally 5 years. Once the fixed rate period has come to an end, the rate of interest applied to the loan will depend on the lender’s Standard Variable Rate of interest at the time. This is will not be known when the loan is taken out and could therefore be higher or lower than the fixed rate.
- The interest charged on a Lifetime Mortgage is usually fixed until the end of the term which is the earlier of the last property owner dying or moving out of the home into full time care.
The interest rates charged on Retirement Mortgages tend to be lower than for Lifetime Mortgages (typically 2% per annum difference) because Retirement Mortgages are comparable to conventional mortgages and therefore follow similar terms.
The ways in which Retirement Mortgages and Lifetime Mortgages are calculated differs:
- Retirement Mortgages are based on a multiple of your retirement income (like traditional mortgages), and other factors such as affordability and ‘Loan to Value’ are taken into account to calculate the maximum loan amount.
- Lifetime Mortgage are based the value of the property and the age of the youngest homeowner to calculate the maximum loan amount.
Maximum Lending Available
There is a difference between maximum amount that you can borrow using a Retirement Mortgage when compared to a Lifetime Mortgage: the maximum amount that can be borrowed on a Retirement Mortgages can be much higher than for Lifetime Mortgages because Retirement Mortgages are based on affordability.
Early Redemption Penalties
If you need to redeem your loan early, you will need to be aware of the differences between Retirement Mortgages and Lifetime Mortgages:
- Retirement Mortgages have redemption penalties that apply during the fixed rate period of the loan which is usually the first five years of the term. After this period has ended, you will be free to re-mortgage without incurring a penalty.
- Lifetime Mortgages have early redemption penalties that apply for the entire duration of the loan. They are calculated on two different ways:
1. Fixed basis which is known from outset.
2. Variable basis which is dependent on the yield of 15 year gilts.
There is no maximum for the ages of borrowers on a Lifetime Mortgage whereas there is a maximum age for Retirement Mortgages which tends to be 80.
Retirement Mortgages are a relatively new product and so there tends to be less providers in the market that offer Retirement Mortgages when compared with Lifetime Mortgages.