RE-MORTGAGE
There is within the UK a time bomb of interest only mortgages coming to maturity and many people as they reach retirement, are finding that they do not have the funds to clear the outstanding mortgage. This can be a very stressful situation and the only other viable option is to sell the home and downsize, which should be explored of course. However, many people simply do not want the upheaval of a move and prefer to stay in their family home. Especially, when they have spent a lot of time and money getting it just how they want it.
At CFS Equity Release we meet a lot of clients in this situation. The thing is when you took out that £50,000 interest only mortgage, 25 years ago, it didn’t seem to be an issue and would easily be settled by the time you retire. In reality, clients service the interest but do not make any impact on the capital and finally it comes to the end of the term and there still is that £50,000 needing to be repaid.
SOLUTION
Fortunately, there is a solution, a lifetime mortgage allows you the ability to re-mortgage and stay in your home for the rest of your life. As traditional mortgages have become harder to obtain due to affordability checks, the lifetime mortgage does not require any proof of income or production of bank statements in most cases. Therefore, this is a welcome relief to clients who are retired or about to retire and simply would not qualify for traditional mortgage routes, and of course they cannot really afford to service the monthly repayment.
NO MONTHLY REPAYMENT
A lifetime mortgage does not require any monthly repayment, instead interest is applied and will roll up, so the downside to this is that the debt will increase over time and reduce the equity in the home, but this is a far better solution than having to leave your family home. The positive side of this, is that you retain full ownership of your property and of course you benefit from the increase in value. (It should be noted of course that house prices can fall as well). This is often overlooked when people discuss these types of loans. This is easily demonstrated when we ask “How much did you pay for your home 25 years ago?” – And the answer is usually around the £65,000 figure depending on area – in fact according to data from Nationwide the average house price in 1995 was £51,245! Compare that today and latest figures show £220,133, so on this averaged figure an outstanding mortgage of £50k allows for £170,133 of equity in the home and would represent 22.7% loan to value.
FLEXIBLE
In addition, you can make voluntary repayments, so you could pay the interest every month if you have sufficient pension income. Lifetime mortgages are very flexible and certainly can give you the option in retirement to settle your current mortgage and maintain your home ownership, and still leave an inheritance. You should speak to one of our expert financial advisers to seek advice and understand fully the options, you will be provided a personal illustration based on your circumstances.
You must obtain financial advice and request a personal illustration based on your circumstances. Lifetime mortgages are subject to being over the age of 55 and be a homeowner with a minimum property value of £70,000. Please read our Regulatory Statement.
