According to analysis by UK Finance there are 40,000 interest-only mortgages set to mature in 2020.
The FCA have been recommending that interest-only mortgage borrowers talk to their lenders about repayment, expressing concern about the number who may be unable to pay off their loan at the end of its term.
How could a lifetime mortgage help these borrowers?
Lifetime mortgages, the most popular form of equity release, are one possible solution. Some borrowers find this alternative appealing because many of these products allow them the ability to manage interest through payments.
Let’s examine a couple of instances where a lifetime mortgage might be considered.
Mr and Mrs Jones – Mr and Mrs Jones (aged 61 and 59) owe £80,000 on their maturing interest-only mortgage, and their property is currently valued at £350,000
Mr Jones is still working full time, and Mrs Jones is part-time, so they have a reasonable income.
They would like to fix the rate charged at the outset of the loan. They have decided that they wish to maintain 100% of the interest payments on the loan until their planned retirement in 5 years’ time. Once they retire, they would like to cease payments and are aware and comfortable in the knowledge that the interest will roll up after this time.
In this circumstance a OneFamily Interest Payment Fixed Rate Standard Lifetime Mortgage may be suitable for these customers.
There is no proof of income required with this product.
If at any time during the loan (e.g. when they retire) they decide not to continue with the payments (or if they miss four monthly payments) they can switch over to the OneFamily Interest Roll Up product. This product also offers the added benefit of allowing the customer to make a Voluntary Payment of up to 10% of the original loan each year.
Mr Smith – Mr Smith (aged 72) has a current interest-only mortgage with a high street bank and they have written to him to state that the loan is due to be repaid.
Mr Smith is retired and has a pension, but his income is insufficient to apply for a retirement interest-only mortgage.
A suitable option available for Mr Smith may be the OneFamily Super LTV Interest Roll Up Fixed Rate product which will allow him to raise a sufficient amount to repay his existing loan of £170,000 and an additional £6,250 for home improvements.
With this product he also has an added benefit that he can make a Voluntary Payment of up to 10% of the original loan if he wishes, but this is not compulsory, and he does not have to make any payments if he chooses not to.
The interest on the loan is rolled up and repaid when Mr Smith goes into long term care or dies and the property is sold.
Find out more about how OneFamily Lifetime Mortgages can help your customers. The Super LTV Lifetime Mortgage is designed specifically to help customers aged 70 and over who want to release more equity in their home. It offers:
- LTV up to 58%
- Fixed interest rate of 6.29% MER (6.47% AER)
- Free valuation on properties up to £1m in value
- Fixed Early Repayment Charge for 8 years, after which there is no ERC
Visit onefamilyadviser.com to find out more.
