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Interest Only Mortgages for Older Borrowers (70+)
Securing a mortgage when you are an older borrower has been an ongoing hurdle for many. Home remortgaging when you are over 70 is out of reach with standard banking structures. High street banks typically set an upper age limit for repayment at 75, and offset that with a minimum 5-year term, making it technically impossible to meet the criteria.
Even if you have a steady pension income, equity in other properties, and a clear strategy, age caps can stop you remortgaging. In many situations, this leads to the worry of becoming a mortgage prisoner, where you’re locked into high rates and unable to refinance to bring costs down.
As new products enter the market and new terms are constructed, however, possibilities do arise. At Clifton Private Finance, we may have the answer, with access to new interest-only mortgages for the over 70s.
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DTIO - A New Option for Later Life Lending
A defined-term interest-only (DTIO) mortgage offers the much-needed solution. Similar in many ways to a standard interest-only mortgage, this gives retirees a way to release equity on their property for a set period, avoiding the cumulative interest concerns of lifetime mortgages and allowing equity release or refinancing based on pension income.
A defined-term interest-only mortgage:
- Sets borrowing up to age 90+ - perfect for homeowners looking to refinance their property in their seventies.
- Has a set end date - Unlike lifetime mortgages or RIO (retirement interest-only mortgages), DTIO sets an exit point.
- Allows for longer borrowing - With a repayment cut off point into your 90s, 20 year DTIO mortgages are realistic and not uncommon.
- Has higher borrowing levels - In many circumstances, loan-to-income (LTI) ratios can be as high as 6-7x, much greater than RIO mortgages.
A DTIO mortgage brings the power of a standard interest-only mortgage to older borrowers. It uses detailed underwriting and a greater understanding of borrower needs to offset traditional lender concerns, providing an option that can make all the difference
Why Use a Retirement Interest Only Mortgage at 70+?
Traditional interest-only mortgages are simply unavailable for most borrowers over 70. The number of lenders willing to consider an application at this point shrinks considerably. Often, essential refinancing is cut off, leaving homeowners stuck paying higher rates, or sitting on property that cannot be properly leveraged.
Fixing the Mortgage Prisoner Problem
Choosing a mortgage is complicated. Unless you’ve got a specialist like us at Clifton Private Finance on your side, it’s easy and understandable that mistakes are made. Often, they’re not even mistakes, simply the best option in difficult periods. At CPF, we deal with many clients who made the best decisions possible at the time, but are now feeling the squeeze from mortgages that are poorly suited to their needs.
Facing a mortgage application rejection that would save you hundreds of pounds each month (and sometimes, thousands) simply because you’re a year or two too old for the strict rules of the bank can be heartbreaking and financially devastating. Unyielding systems lack compassion, and rarely take your wider circumstances into account.
Instead of such brute-force techniques to determine risk and affordability, lenders offering DTIO undertake a deep analysis of pension forecasts, and combine all the technical financial wizardry of modern affordability testing with manual underwriting that focuses on age-specific statistics. In clearer terms, the lenders understand that being 70+ means you have a completely different financial outlook than someone in their 30s, even if the numbers are the same.
This means mortgage prisoners can finally unlock the gates and be free. No more unpleasant variable rates that drain resources with their inconsistency, instead a clear, low, fixed rate that makes monthly money management easier and simpler.
Releasing Equity
Unlocking the money tied up in your home can help you in multiple ways, giving your retirement the boost you deserve. Through a DTIO mortgage, you can raise capital without needing to sell your home. For homeowners keen to avoid the compound interest concerns of traditional lifetime mortgages, an equity release structure that allows you to neutralise interest as it accrues provides peace of mind and financial security.
With a DTIO mortgage you can:
- Fund renovations - Keeping your house in a well-maintained condition is essential for holding its market value, while improvements will boost that value, returning on your investment for you and your heirs.
- Improve accessibility - As you grow older, the physical design of your home may need adjustment. Accessibility alterations, such as adding a walk-in-shower, or widening doorways for wheelchair access, will improve your life and make sure your home keeps feeling like your safe sanctuary.
- Help your children’s financial future - Times change, and getting onto the property ladder is far more difficult for younger generations that it has ever been. Using the money built up in your home to gift to your children or grandchildren to give them a step up is a worthy use of the equity. Similarly, paying for school fees or university costs can ensure they have the best start in life for their personal success.
- Buy a holiday home - Caravans, chalets, or cottages can all be bought outright using the money provided by the mortgage.
- Consolidate debt - If you have other debts, such as credit cards, overdrafts, car finance, or unsecured personal loans, A DTIO mortgage can help. By paying them off and bringing all that debt together in one easy payment, your DTIO will make sure you pay less interest and have a smoother administrative load.
- Enjoy retirement - Using the money for lifestyle purposes, such as going on a cruise or spending more time with family, is a valuable use of your home equity. Your DTIO mortgage can secure the retirement you’re after.
Recent Equity Release Case Studies
Repaying a Defined-Term Interest-Only Mortgage
As an interest-only mortgage product, it is important to understand that your monthly repayments on your DTIO cover only the interest generated, and do not repay the balance of the loan.
At the end of the term, you will still owe the full amount borrowed, and this must be repaid through an exit strategy - typically through downsizing when the time comes.
Monthly repayments equal to the interest portion of the mortgage.
One final exit payment of the mortgage capital, through:
- Selling the property,
- Downsizing, or
- Liquidating other assets.
Interest-only mortgages have an extremely low monthly cost, making them an excellent choice for people with only a modest pension for income. Historically, property values have tended to rise over the long term, typically making the final repayment significantly less impactful than is first thought.
How Much Can You Borrow?
With a defined-term interest-only mortgage, lenders use unique underwriting criteria to establish a risk profile and maximum borrowing limit that is suitable for use.
Loan-to-Value (LTV)
The LTV represents the size of your DTIO mortgage against the value of your property.
For example, an £80,000 mortgage taken out on a £200,000 home would have an LTV of 40% (80,000 is 40% of 200,000).
For DTIO, standard maximum LTV is 75%, though in some cases it is possible to obtain an 80% LTV mortgage.
Loan-to-income (LTI)
Loan-to-income represents the maximum loan available to you based on your income. This can come from multiple streams, such as pension, investments, other property rentals, semi-retired work, etc.
While most lenders will cap a mortgage at 4-5x LTI, with a keen eye to the spending habits of borrowers aged 70+, DTIO mortgages offer an impressive 6-7x LTI, allowing for much larger sums.
Joint DTIO Mortgages for Couples
Borrowing power increases when the mortgage is applied for as a couple. In these cases, two sets of income are added together when calculating LTI. Lenders will also consider the availability of survivor income if one applicant passes away. This may be a life insurance policy, for example, which reassures lenders that the mortgage will remain affordable for the surviving partner.
DTIO Financial Criteria at a Glance
- The lowest of LTI and LTV represents your actual mortgage borrowing potential.
- Mortgage rates are slightly larger to offset risk, at approximately 1.5% higher than a comparable standard interest-only mortgage.
- DTIO mortgages have a minimum loan size of £50,000.
Getting a DTIO Mortgage with Clifton Private Finance
Defined-term interest-only mortgages for borrowers over 70 are a relatively new product in the UK marketplace, available from a select group of lenders only through their chosen partners. Clifton Private Finance stands alone as the exclusive partner to a premium specialist lender, able to offer this unique solution to our clients.
By working with us you gain
- Specialised advice and support.
- Comprehensive pre-approval checks, using specified lender criteria, to ensure that all expectations are met.
- Rapid application processing, cutting standard turnaround time in half.
- A tailored solution to meet your specific needs.
Contact CPF today to book a free consultation. We will discuss the full range of options with you, giving you a true measure of your borrowing power and explaining the pros and cons so you can make a fully informed decision. To unlock the financial potential of your home in later life, call Clifton Private Finance.
