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Equity Release/ Lifetime Mortgages: Interest Only Mortgage Timebomb!

If you have an interest-only mortgage, you have only been paying the interest on the loan, rather than the debt back. So whatever you borrowed you still owe.

There are options you can consider:

Extend your mortgage
Depending on how long is left on your mortgage, your lender may consider extending the term. The lender is likely to consider this if extending the term will still result in the mortgage being repaid. This will give you more time to consider the options, but there will still be an End date where the mortgage will need to
be repaid.

Remortgage
If you have enough time left on your loan, the bank may let you remortgage onto a repayment loan.  This would mean switching directly to a repayment mortgage.

Downsize
Selling your home may release enough to pay off your mortgage. It will mean buying a smaller property or keeping the cash balance after your sale and renting. (Please see Equity Release Purchase below)

Talk to your bank
Lenders have been training staff in how to deal with borrowers in these situations.  They have been told to give borrowers time to consider their options and assess if any variation to an existing mortgage with significant increases in monthly repayments could help the situation.

Savings
If you have any savings, or expecting a maturity of a savings policy, Tax Free lump sum for your pension, then these could be used to repay your mortgage.

Cash in your endowments
Many borrowers took out an endowment policy in the 1980s and 1990s to cover repayments on the mortgage. However, many of these investments may have underperformed.

There is an argument for taking the cash from your endowment now to have access to some funds to pay off part of the mortgage.

Get your children to pay
By paying off the interest as you go, you can dramatically reduce the total cost of the debt. In effect, you are simply converting a standard interest-only mortgage into an interest-only mortgage for life. One potential way of making this work is to get children or other family members to contribute the interest costs of the loan. This is especially helpful where the children are the beneficiaries of the will and as they will ultimately benefit from a property that only has the original mortgage amount that has not increased by the roll up of compound interest.

Equity release
Many homeowners want to remain in their home. It is where you have raised families, know your neighbours and are the most comfortable. You have a lot of memories and emotions in your property.

One way of staying in your home is through equity release. This allows you to release equity in your home to pay off debts and stay in it at the same time.

There are many options and type of Equity Release, Lifetime Mortgages and Home Reversion schemes, your adviser will explain all the different types and their features benefits and disadvantages. With NO obligation at a FREE consultation, all fees and charges would be explained to you at that consultation, (e.g; Valuation, Arrangement, Broker, Legal fees (and if a purchase Stamp duty).

You can have Lump sums, Lump sum with cash reserve facilities, repay interest on an ad hoc percentage per year, a monthly basis or make no repayments at all. You can still move, transfer the Equity to another property, downsize, repay all or part of the mortgage. The plans are very flexible and you still retain ownership of your home.

Equity Purchase (Downsizing)
If you do decide to downsize you would look at the balance of cash you would have after you have sold your property and perhaps think that this is not enough to purchase the type of property that you would want to spend the rest of your retirement days in! However you can use Equity Release to purchase a property. Very simply you arrange to release Equity from the property you are going to buy.

EXAMPLE; You have a home valued at £325,000 and an Interest Only Mortgage of £140,000 that needs to be repaid in the next year. You enquired about Equity Release Lifetime mortgages and at the moment you can only release £90,000. Unfortunately with that amount you are unable to redeem your existing mortgage.

Based on these figures, if you were to sell your property you would
be left with £185,000. Would that be enough to purchase the retirement home you would like? However, by using an Equity Release (Purchase) lifetime mortgage and depending
on your ages and personal circumstances you could get say £85,000 to help with that purchase.  You would then be looking to purchase at £270,000. Or if you purchased at £240,000 you would
keep the balance as a cash sum. This is all arranged whilst you are still in your present home and just like a normal mortgage you would move out of your property and into your new one on the same day.

In this example, the Stamp duty would have been £2300.00 the other fees would be dependent on the lenders fees. Legal Fee approximately £1200.00

If you are interested to learn more and see how an Equity Release Lifetime mortgage may help you, then you need to see a Qualified Equity
Release Adviser.

The steps he or she will take are:

  • Initial Telephone Consultation to check eligibility.
  • If eligible, the adviser will research the entire Equity Release market to ascertain if what you are looking to release is possible.

All research and advice at this stage is at NO cost to you.

Risk warnings
This is a Lifetime Mortgage, to understand the features and risks ask for a personalised illustration

An Equity Release Lifetime mortgage will reduce the amount of inheritance you will be able to leave, and it could affect both the tax you pay, and any welfare benefits you receive. 

There may be an arrangement fee, which will be deducted from the amount you receive or in some cases you can add this to the mortgage amount.

You will also be required to pay your own legal fees when you instruct a solicitor to act on your behalf. There may be an independent valuation fee (and stamp duty to pay If you are purchasing a property).

IF you would like a friendly informal discussion please contact myself Bob Ducker CeFA, CeMAP, CeRER
e. bob.ducker@trustrjp.co.uk
Direct Line 01202 896037
Mobile 07971 376782
w. www.equityreleaseadvice.online

Robert Ducker is a Registered Individual of Richard James Partnership Ltd who are directly authorised and regulated by the Financial Conduct Authority under reference number 301173.

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