Older borrowers may have more choices for funding their retirement as Nationwide has announced a new later-life lending range.
Nationwide is the first big player to join the growing number of smaller building societies to have launched retirement interest-only (RIO) mortgages in recent months.
The Which? Recommended Provider says its new products are members of a plan to 'address the requirements of a changing and ageing population'.
But how do its interest-only mortgages work, and therefore are their rates the best available on the market?
What are Nationwide’s new later-life mortgage options?
Nationwide has launched three new products:
These choices are open to borrowers aged between 55 and 85.
Currently, only individuals with an existing Nationwide mortgage can use, but the building society says it'll make these products more widely available this summer.
Nationwide’s retirement interest-only mortgage
Much like a regular interest-only mortgage, a retirement interest-only mortgage enables you to pay off just the interest every month, instead of the actual mortgage balance.
As is truly the case with RIO mortgages, Nationwide’s offers are repayable upon your death or when you move into long-term care, at which point your house is going to be sold to cover the loan.
You must be receiving a pension to be entitled to Nationwide’s RIO mortgage, which has a maximum loan-to-value (LTV) ratio of 50% and a maximum loan amount of lb500,000.
Nationwide’s later-life repayment mortgage
As with the RIO mortgage, this deal has a maximum LTV of 50% and a maximum loan of lb500,000. Again, you need to be receiving a pension.
However, this can be a capital and interest repayment mortgage, so you’ll be paying off both the interest and the mortgage balance throughout its term.
This might make monthly payments more expensive, however it does mean your descendants might not have to market your home whenever you perish.
Nationwide’s lifetime mortgage
Nationwide’s lifetime mortgage is an equity release product. The utmost amount borrowed depends upon how old you are as well as your property’s value.
Like the RIO mortgage, it's repayable when you die or move into care.
Unlike Nationwide’s other later-life mortgages, you do not have to create any payments monthly. However, there might be numerous drawbacks. Read our guide to lifetime mortgages for more information.
Retirement interest-only mortgages: the best deals available
Since a growing number of lenders are offering RIO mortgages, it’s worth checking how Nationwide’s deals compare.
Our retirement interest-only mortgages guide includes a detailed introduction to every RIO mortgage currently available on the market, and every lender’s eligibility criteria – however for a snapshot, the table below shows the very best products on the market by initial rate, based on Moneyfacts.
At the moment, all the top rates originate from discounted variable-rate mortgages, which are pegged in a certain percentage below the lender’s standard variable rate (SVR).
Nationwide has stated its RIO products will be tracker and fixed-rate mortgages, starting at 2.74% and a pair of.99% respectively.
This will set it close to the front from the pack for fixed-rate RIO deals, because the table below shows.
Other factors to bear in mind
Of course, rates aren’t the one thing you should think about when choosing a mortgage: fees, Ts and Cs and customer support should also play a part.
To assist with your decision, we’ve combined customer feedback and expert research into the mortgage sell to work out the very best mortgage lenders.
Our most recent review found Nationwide to be among the four best lenders on the market and thus we referred to it as a Which? Recommended Provider.
Lifetime, repayment or RIO mortgage: which option is best?
All three of these mortgage types might be suitable for older homeowners looking to release equity from their property.
If you need to release cash by remortgaging now but could manage to repay interest and capital going forwards, a repayment mortgage could allow you to settle the borrowed funds before you decide to die, meaning you can still leave your home to your descendants.
If, on the other hand, you are able to only invest in a small monthly payment, a RIO mortgage supplies a flexible solution as you can reduce the interest and also usually make penalty-free overpayments as high as 10% from the capital each year if you’re able (this will vary by lender though, check terms first).
With a lifetime mortgage, many lenders charges you you additional if you want to spend the money for loan off early. And since you’re not paying interest or capital, your total loan can spiral quickly, potentially leaving your descendants with very little inheritance in the way of property value.
