Interest-only mortgages for over 60s (5 key tips)
By
HuutiMoney
In this brief blog, we will discuss getting an interest-only mortgage for over 60s, what challenges you may expect to face and how to circumvent them. The three main considerations when trying to get an interest-only mortgage for over 60s or over are your age as a borrower, your income as someone who is over 60 and your capital repayment vehicle for the interest-only mortgage.
An interest-only mortgage is a mortgage where your monthly mortgage repayments are made up of only the interest being charged to the mortgage and not the capital repayment.
The capital repayment is paid off at the end of the mortgage term in one large lump sum and you will need a capital repayment vehicle approved by the mortgage lender before you will be able to get an interest-only mortgage.
The capital repayment vehicle could be the sale of the property, savings accounts, investments and in some cases the interest-only mortgage lender will want to monitor the capital repayment vehicle and conduct periodic reviews to ensure the capital repayment vehicle is still on track to repay the capital borrowed on the interest-only mortgage.
If your capital repayment vehicle seems like it isn’t going to work the mortgage lender may suggest you switch to a capital repayment mortgage or a part and part mortgage.
Can I get an interest-only mortgage at 60?
The short answer is yes, you can get an interest-only mortgage at 60 years of age or over but let’s explore further to the three main pillars of your mortgage affordability.
Your age
Yes, you can get an interest-only mortgage for over 60s but you may find it hard to find mortgage lenders who are willing to lend to you due to your age. Most mortgage lenders prefer that the mortgage term ends before the borrower turns 75 or before the borrower retires from work.
This means that although getting an interest-only mortgage at 60 could be possible you may find that most interest-mortgage lenders will only offer you a mortgage with a term of around 15 years so the mortgage ends when you turn 75. A smaller term interest-mortgage than you may have initially wanted wouldn’t make a difference to your monthly mortgage repayments as the monthly mortgage repayments are made up of interest only and not the capital.
If this was a repayment mortgage then your monthly mortgage repayment would have risen as you would be paying back the capital borrowed in such a smaller time frame than you might have anticipated.
There are interest-only mortgage lenders there that may lend way beyond the age of 75 and even those that have no maximum age to those they will lend to. You may need to use a specialist mortgage broker to find interest-only mortgage lenders who are happy to lend to you at 60 and could lend to you with an interest-only mortgage term ending way beyond 75.
Your income
To get an interest-only mortgage for over 60s you will also need to satisfy the mortgage lenders income checks. Interest-only mortgage lenders will want to be satisfied that you can pay the monthly mortgage repayments each month for the duration of your interest-only mortgage. This means if you are retired you will need to display some sort of income. This could be income from investments, income from your pension, income from employment, income from your savings or income from buy to let properties.
As far as the interest-only mortgage lender is satisfied that you have the suitable income to cover your monthly mortgage repayments for the duration of the mortgage then you may be able to get an interest-only mortgage for over 60s.
Your capital repayment vehicle
Your capital repayment vehicle is an important element of you being able to get an interest-only mortgage for over 60s. The interest-only mortgage lender will want to see how you intend to repay the capital borrowed to you as you move towards retirement.
Most interest-only mortgage lenders will accept the below as suitable capital repayment vehicles:
- Savings in ISAs
- Stock market investments
- The sale of a property
- Remortgaging
The interest-only mortgage lender will conduct regular reviews of your capital repayment vehicle for your interest-only over 60s mortgage and if they find that the capital repayment vehicle is beginning to fail they may request that you submit alternative plans for the capital repayment or switch to a more suitable mortgage such as a part and part mortgage or a capital repayment mortgage.
The amount you may be able to borrow for an interest-only mortgage for over 60s will depend heavily on the mortgage lenders income multiples. It is common to see income multiples of around 3 or 3.5 but most mortgage lenders will not offer income multiples of 5 and over for an interest-only mortgage for over 60s.
Assuming the income multiple is 3 and your annual income can be summed up to be £50,000 a year then you will be able to get an interest-only mortgage for over 60s of £150,000.
The amount of mortgage deposit and the strength of your credit score may also influence the mortgage lenders decision on what income multiple to offer you.
How much mortgage deposit do you need for an interest-only mortgage for over 60s?
For an interest-only mortgage for over 60s you can expect the mortgage deposit requirement to be around 25% as most mortgage lenders will want to limit their risk and offer a loan to value of around 75%.
Putting down a larger mortgage deposit may increase the amount of mortgage the interest-only mortgage lender is willing to lend you and potentially reduce the mortgage rate which you may be charged.
As you are getting an interest-only mortgage you won’t be able to use any of the government’s first-time buyer and home mover schemes]() as those schemes will usually require the borrower to be taking a capital repayment mortgage.
Bad credit issues usually make getting a mortgage hard for borrowers and will certainly make getting an interest-only mortgage for over 60s much harder.
Bad credit doesn’t necessarily mean you won’t get an interest-only mortgage but as each mortgage lender has their own specific criteria for what they accept in regards to bad credit you may find that it is a more specialist area and your eligibility for an interest-only mortgage for over 60s will depend on your particular circumstances.
In some instances, interest-only mortgage lenders will lend to borrowers after considering their bad credit issues. The basis on which they lend may be on the type of bad credit you have. For example, some interest-only mortgage lenders will lend to borrowers who have had defaults in the past but won’t lend to borrowers who have had bankruptcies regardless of if they have been discharged or not.
In the same way, some interest-only mortgage lenders will lend to borrowers based on the total value of bad credit they had.
Bad credit could include:
A CCJ
An IVA
A debt management plan
A default
A bankruptcy
A home reposession
Mortgage arrears
Credit account defaults
Missed credit repayments
A bad credit mortgage broker may be able to help you get an interest-only mortgage for over 60s based on your personal circumstances.
Can you get an interest-only mortgage for over 60s as a self-employed borrower?
Just as bad credit mortgage borrowers may find it hard to get an interest-only mortgage for over 60s, self-employed borrowers may find it just as hard.
As a self-employed borrower, you will be required to prove to the interest-only mortgage lender that you can indeed continue to make your monthly mortgage repayments as you have enough income to cover the monthly mortgage repayments and your income is reliable and can be assumed to be reliable in the future.
Most interest-only mortgage lenders will expect to see accounts for up to 3 years but there are some mortgage lenders that will accept less than 3 years worth of accounts bt no less than 12 months.
If you are newly self-employed then you may find it hard to get an interest-only mortgage for over 60s as the mortgage lender will have no proof that you could potentially have a reliable self-employed income.
Interest-only mortgage lenders may ask to see your CV to see how much experience you have had in the field and what your employment history looks like. They will not want to see that you have had long gaps in employment as this could mean that you struggle to get jobs.
If there are any long gaps in employment in your CV then you should write a note explaining this in your CV.
If you are a contractor the interest-only mortgage lender may want to see your third party agreements or contracts. They will also want to know your day rate and see evidence of this.
When assessing you for an interest-only mortgage for over 60s, the documents you may be required to produce as a self-employed borrower include:
Your Bank statements for 3 months
Your P60 tax return form
Your SA302 tax calculation form
Your third party contracts
Your CV
Your company accounts with an accountants certificate for a mortgage
How to increase your eligibility for an interest-only mortgage for over 60s?
Getting an interest-only mortgage for over 60s may be hard so you will want to do everything in your power to increase your mortgage affordability and eligibility. Below are some of the things you could do to increase your eligibility for an interest-only mortgage for over 60s.
Increase your mortgage deposit
Increasing your mortgage deposit from the typical 25% or so required will reduce the mortgage lenders loan to value rate and in effect reduce their risk on the mortgage. This could make theinterest-only mortgage lender more willing to lend to you.
Buy a standard construction property
Non-standard construction properties will be much harder to mortgage and you may find that getting an interest-only mortgage for over 60s on a standard construction property may make things proceed smoother.
Have a good credit
Having a good credit score will increase your mortgage affordability among interest-only mortgage lenders and may even increase how much mortgage they are willing to offer you.
You should check your credit score with all three credit bureaus to ensure there are no issues. You can do this by requesting your statutory credit reports from all four( yes, Crediva is the fourth credit bureau) of them or you could use a service like checkmyfile to see your credit report free for the first 30 days from all four credit bureaus.
Have a reliable source of income
If you have a reliable source of income such as standard employment, buy to let investments or investments which produce passive income on a recurring basis such as fixed-income investments then you may find that more mortgage lenders may be willing to offer you an interest-only mortgage for over 60s.
Have a strong capital repayment vehicle
A strong capital repayment vehicle may also increase your eligibility for an interest-only mortgage for over 60s as the mortgage lender will feel comfortable that you will be able to repay the interest-only mortgage at the end of the mortgage term.
Can I get an interest-only mortgage at 65?
Yes, you may be able to get an interest-only mortgage at 65 as there are mortgage lenders who will consider lending to you if the mortgage term will end beyond 75 and even beyond the age of 90
Can a pensioner get an interest-only mortgage?
Yes, a pensioner can get an interest-only mortgage as long as they can show that they can make the monthly mortgage repayments and have a suitable capital repayment vehicle which the interest-only mortgage lender accepts.
Can you get a BTL interest-only mortgage for over 60s?
Yes, you may be able to get a buy to let interest-only mortgage for over 60s but you may have to put down a larger mortgage deposit and you may need some prior experience as a buy to let investor.
Alternatives to an interest-only mortgage for over 60s
If you are primarily looking for an interest-only mortgage in a bid for you to reduce your monthly mortgage costs then you may want to consider the options below too.
Downsize your property
If you are getting much older and want to reduce the monthly cost of your mortgage then you should consider downsizing to a smaller property. You may even be able to become mortgage-free by using the equity in your current home to purchase a new home.
Equity release
Using an equity release scheme may mean that you don’t have to make any monthly mortgage repayments and you have access to a large sum of money derived from the equity in your home.
Equity release schemes essentially allow you to release some of the equity in your home for the rest of your life. You will usually have to be over 55, be a UK resident and have sufficient equity in your home to release. You may be able to release as much as 50% of the equity in your home.
The equity release provider is paid when you die or move into long term car by selling your property and returning any excess cash to your estate.
How to get an interest-only mortgage for over 60s
If you want to get an interest-only mortgage for over 60s then you should consider speaking to a mortgage broker who could help you assess your mortgage options and provide you with suitable solutions.
If you need financial advice and you live in the UK then you could contact the Money Advice service over the phone or via chat for impartial advice.
You can also contact the debt charity “Step Change” if you are in debt and need help.
