Debt affordability after retirement, interest rate shocks and voluntary repayments

Over the next two decades, many people 65 and over will be reaching the end of the term on their interest-only mortgages. Whether the outstanding loan amount then presents a problem for these retirees depends on such factors as interest rates and whether or not they have made voluntary principal payments along the way. The high-risk group covers approximately 5% of these elderly. They do not have enough financial leeway to afford an increase in housing costs due to potentially higher interest rates and stricter requirements for extending the term of the mortgage.

 

Key Takeaways for the Industry

  • For most older homeowners, their mortgages will remain affordable. A small percentage, though, may run into difficulties. Despite the fact that this high-risk group is not very large, it should not be ignored; the problems they face are intractable.
  • The most favorable option would be to devise a customized solution for these people, such as extending the life of the interest-free mortgage.
  • This falls outside the parameters established by financial regulators, so some solution would need to be found for that.

Netspar, Network for Studies on Pensions, Aging and Retirement, is a thinktank and knowledge network. Netspar is dedicated to promoting a wider understanding of the economic and social implications of pensions, aging and retirement in the Netherlands and Europe.

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