Are there short period mortgages with no early exit fee?

Q We are due to retire in two years' time and will move home then. If we found our ideal home before then, we want to buy it in advance.

If we were to liquidise our savings to do that we would probably still be left with a shortfall of £100,000 (which would be available once we sell our current home).

If we take out a mortgage, would we find ourselves paying a penalty for early exit? Can you get a short period mortgage? I note from previous questions that you don't recommend an ordinary loan rather than a mortgage.

Alternatively we could probably borrow the money from my father but as he is 92 that could be complicated if he had to go into care in the meantime. What would be the best way of financing the purchase?

MP

A Rather than borrowing from your father (which could, as you say, be rather complicated given that he might have to pay tax on any interest you pay him and so possibly fill in a tax return), the best way of financing the purchase of your ideal retirement home would indeed be to raise a mortgage on your current home.

And since it tends to be mortgages with special interest-rate deals - such as fixed or capped rates - that carry an early repayment penalty, then no, you wouldn't necessarily pay a penalty for early exit. But it's something you need to ask about when looking at the various mortgage deals available.

However, a possible complication might be that lenders tend to have a minimum loan term of three to five years. This doesn't actually mean that you couldn't pay the loan off in two years' time when you retire - and without penalty - because you could. But what it does mean is that the lender will want to check that you can afford the loan repayments post-retirement so you'll need hard evidence of your retirement income.

But because you will have the proceeds from your current home to use to pay off the mortgage and because you would be looking to pay off the loan fairly quickly, your lender might be prepared to be quite flexible - especially if you set the loan up on an interest-only basis. This would mean that your monthly repayments would be cheaper than if you set it up on a repayment basis.