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26 Sep 2021

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

Longer mortgage terms and demand from over 55s fuel later-life lending

More than half of borrowers will still be paying off their mortgages when they turn 65.

That's according to a new report by UK Finance, which found that 52% of mortgages taken out in the first half of 2021 will stretch beyond the borrower's 65th birthday.

Here, Which? explains why an increasing number of people will still have home loans in later life, and offer advice on how to cut your mortgage balance.

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Homeowners borrowing into retirement

New data from UK Finance shows a rising number of homeowners are taking out mortgages that will take them beyond the age of 65.

In the first half of this year, banks granted 325,000 such mortgages, that's 52% of overall deals.

313,000 new mortgages are scheduled to end when the borrower is aged between 65 and 74, while 12,680 will continue beyond the borrower's 75th birthday, as shown in the chart below.

Why are people borrowing for longer?

People are working and living for longer than before, and this has been reflected in the growing popularity of borrowing into later life.

UK Finance says growing demand from borrowers aged 55 or over is a key driver, with applications remaining strong despite the pandemic.

Older homeowners are taking out new mortgages as they look to access equity from their homes in retirement. This has fuelled the growing popularity of lifetime mortgages (a form of equity release) in the last few years.

The other driving force is likely to be first-time buyers, who are increasingly spreading their home loans over terms of 35 or even 40 years in an attempt to boost affordability at a time when house prices are soaring.

A recent study by the wealth manager Quilter found 25,000 people took out mortgages with terms of 35 years or more in March - up 70% on the figure recorded two years ago.

How easy is it to borrow into retirement?

Older homeowners buying properties or remortgaging may find they only have limited options in the standard mortgage market.

That's because many lenders place upper limits on how old you can be on the date the mortgage is due to be paid off.

Limits are often set at either 75 or 80 years, so if you're 60, you might only be able to take out a standard mortgage with a term of 15 or 20 years.

Some lenders are more flexible with maximum age limits than others, so it can be helpful to take advice on your options from a mortgage broker.

Equity release and lifetime mortgages

Rather than applying for standard mortgages, some older homeowners take out equity release plans.

Equity release allows you to release some of the value in your property to access a lump sum in retirement, without the need to sell your home.

The most popular form of equity release is a lifetime mortgage. Data from UK Finance shows nearly 19,000 lifetime mortgages were granted in the first half of 2021.

Lifetime mortgages allow you to borrow a lump sum, with the interest 'rolled up' over the full term of the loan. This means you won't need to make monthly repayments, but interest will instead compound until you die or move into residential care.

Retirement interest-only mortgages work similarly, albeit you'll pay interest on the loan each month, with the capital amount repaid when the property is sold, either upon your death or going into care.

Equity release can be expensive, and it's not the right move for everyone. With this in mind, it's best to take advice from an expert before rushing in.

Should first-time buyers consider longer mortgage terms?

As we mentioned earlier, longer terms are also behind the growth in mortgages that run past the age of 65.

If you're a first-time buyer, taking out a mortgage for 35 or 40 years rather than 25 or 30 could be the difference between you being able to buy a home or missing out entirely.

Spreading your mortgage over a longer term means lower monthly repayments, but that you'll ultimately be paying off the loan - and interest - for much longer.

How to pay off your mortgage more quickly

If you're thinking of taking out a mortgage with a longer term, consider whether you'll be able to chip away at the balance as you go and pay off the loan sooner.

Mortgage rates are very low right now, and most providers will allow you to overpay up to 10% of your outstanding balance each year.

This means that you'll be free to pay a bit more towards your mortgage, be it monthly, on an ad-hoc basis or even just an occasional lump sum.

Paying a little extra each month can have a big effect on your balance, allowing you to repay your mortgage much earlier and make big savings.

When we crunched the numbers, we found that an overpayment of £100 a month on a £200,000 mortgage could enable you to shave three years off the term and save as much as £10,000 in interest.