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  • Writer's pictureThe Cedar Crest Team

Over half of borrowers will still have a mortgage at 65: how to pay off your home loan more quickly

Updated: Oct 12, 2021

Longer mortgage terms to the over 55s is a growing trend


Are you planning on getting a mortgage in the near future?


If so, be aware that your loan might stretch past 65. A recent report published by UK Finance revealed that over 52% of mortgages taken out between January and June in 2021 will likely last beyond an individual’s working age!


 

Acquiring a mortgage during your retirement


According to a study by UK Finance, there's been an increase in the number of homeowners who have purchased a property with a mortgage, that will last past their 65th birthday.


The first half of this year has seen a hefty increase in mortgage lending to more than 325,000 borrowers. That is 52% of all deals completed throughout the year.


Comprehensive data published by UK Finance, indicates that more than 300,000 mortgage loans are expected to end when the debtor reaches the age of 65 to 74.

A further 12,680 mortgages will extend beyond that point and last until the borrower reaches the age of 75.


 

Why is the average loan length increasing?


With the rise in longevity, people are living longer and working for a larger proportion of their lives. This has led to a significant increase in popularity of mortgage loans acquired later in life.


UK Finance says that despite the pandemic, applications from borrowers aged 55 or over continue to grow.


As baby boomers enter retirement, they are taking out new mortgages in order to access equity from their homes. As a result, lifetime mortgages have recently grown in popularity.

We've seen interest rates drop significantly, which means people can get more out of their mortgage with these type of deals, when compared against other forms such as buy-to-let schemes where you need an even bigger sum up front, as a reliable mechanism with which you can secure yourself financially long term. This could have a positive effect down the line, if something unexpected were to happen.


Another potentially contributing factor is the fact that people, who are buying their first property, are looking to structure their loans in a period of 35 to 40 years. This will allow these individuals to access cheaper rates, whilst still having enough money set aside each month to account for possible effects of inflation.


Quilter, a wealth management company based in London found that 25,000 individuals took a mortgage with terms of 35 years or more, during the month of March. This marks a 70% increase compared to the same period from two years ago!


Source: UK Finance, September 2021. Data based on new mortgages granted in first half of 2021.

 

Are you considering to borrow into retirement?


With increasing house prices and a lack of affordable housing, older homeowners may find themselves struggling to get the mortgage they need.

A mortgage loan is a contract between the borrower and lender. The amount of time that they agree on when setting up this agreement will determine what type or term can be obtained by both parties in order for it to work out successfully.


Standard mortgages usually have a term of 15 or 20 years, but if you're over 60 your options might be limited.


Mortgage lenders offer limited options for those who are over 55 or 60 years old because their credit isn't as good.


However, there are possible solutions.


Financial institutions provide "age-based" loans, where income can be monitored more closely than usual, so these people don’t end up paying back thousands extra due just from interest charges on an unsecured loan.


 

Lifetime mortgage and Equity release


Equity release can be a great way to access retirement, funds while still living in your property, without the need to sell your home.


Equity release is a type of finance that allows people to sell some or all their assets in order for them to use the money from those sales as they see fit. Lifetime mortgages work similarly, except instead of using it on your home's value at one time, you can draw down an amount each month without limit.


Lifetime mortgages have established themselves as the most sought out form of Equity release. Reports published by UK Finance say that there were around 19,000 granted lifetime mortgages in the first half of the year.


Lifetime mortgages are an attractive option for people who need to borrow a lump sum of money and don’t want the hassle or risk associated with monthly repayments.


This includes those seeking financial security because they're preparing for retirement, caring for elderly parents in their final years (or even just planning ahead), buying/rebuilding homes once prices increase above what's affordable today - whatever your situation may be!


A retirement interest-only mortgage is a smart financial move for older homeowners who want to live off their equity. This type of loan works similarly, albeit you’ll pay interest on it every month with capital amount being repaid when the property is sold, either when you enter elderly care or upon your death.


Equity release is an expensive and complicated process that may not be right for everyone. Before rushing into this decision, it’s important to seek advice from mortgage professionals who can help guide you along the way. Our team at Cedar Crest can help you if you are in need of advice.


 

Some first-time buyers might be interested in considering longer mortgage terms


Buying a home is one of the most important decisions that you will ever make, but it can be difficult if not impossible without professional financial planning advice.


While it is tempting to consider spreading your mortgage payments over a longer period of time with lower repayments for each month, that might prolong the process for longer.


 

If you're struggling with how to pay off your mortgage, here are some tips that can help.


Some people think that mortgages are better if they have longer terms, but this may not always be the case. If you're planning on taking out a mortgage with an initial term of more than five years and want to pay off your loans sooner instead of later (or when offered), consider whether or not there's enough time in which you can chip away from it.


It is important to take into consideration the specific Mortgage rates associated with a mortgage. With most providers, you can overpay up 10% each year and still stay within your budget.


Whenever the rates are low enough to do so, you can choose between monthly payments or an occasional lump sum payment to pay back your outstanding balance.


Interest rates on mortgages are at historic lows, and paying just a little bit extra each month can have big effects. By making larger loan payments over time, you will pay off your mortgage much faster while saving money.


To put things into perspective, assuming that you start paying an extra £100 a month, it's possible to reduce the length of your mortgage term with three years as well as save as much as £10k in interest.


Source data: UK Finance, September 2021.

Which News

 

>> ARE YOU PLANNING ON GETTING A MORTGAGE? <<


Getting a mortgage close to your retirement age could still be possible.


To understand more about the mortgaging process or if you need advice how to lower your monthly payments, our mortgage advisers are here to help.


Contact us at – UK +44 (0) 203 883 1017 Hong Kong +852 6017 4140 – email info@cedar-crest.co.uk.


Your home may be repossessed if you do not keep up repayments on your mortgage. The value of your estate will be reduced leaving less money for your beneficiaries on your death. Any means-tested benefits you receive may be affected by equity release.


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