For those looking to re-mortgage or take out a mortgage in retirement, things have recently become more difficult.
There are now fewer lenders allowing borrowing above retirement age, and those who still do have, over the past few months, stipulated shorter terms. The Coventry Building Society, for example, reduced its maximum age to 75 and has also dropped pure interest only mortgages. Others are not lending into retirement and sale of property is now generally not accepted as a repayment vehicle for interest only mortgages.
However, all is not lost as, providing there is sufficient income an ‘interest only lifetime mortgage‘ could prove to be a solution.
Interest Only Lifetime Mortgages
The Halifax Retirement Home Plan and the Scottish Widows Flexible Lifetime Mortgage are both lifetime mortgage products which are considered when providing an equity release planning service.
Both plans are interest only lifetime mortgages but allow an interest payment to be made each month so stopping any compounding of interest. Any thorough equity release advice specialist, such as Bower, will look at this as another option for those homeowners who need to take their mortgage into retirement but do not want to incur the higher monthly repayments of a repayment mortgage or see their borrowing increase with a lifetime mortgage.
With interest payments being made each month, the debt does not increase and is repaid on the sale of the property.
Equity Release Planning
Of course a full affordability and credit status check needs to be conducted, and as the Halifax Retirement Home Plan and the Scottish Widows Flexible Lifetime Mortgage are both types of regulated equity release, a full means tested benefits analysis and investigation into available grants is necessary. Part of the advice process will also include assessing the homeowner’s attitude to leaving an inheritance and involvement of any beneficiaries if applicable.
Future Affordability Must be Considered
Planning ahead is crucial when arranging one of these interest only lifetime mortgages as future affordability must be considered. Should one of the property owners die leading to a decreased income, a suitable contingency plan needs to be in place; this could be a life insurance policy which will repay the capital borrowed. Alternatively, if the amount borrowed is maintained within the prevailing limits for equity release then it may be possible to arrange a suitable plan which will release enough money to pay off the mortgage and in doing so avoid those monthly repayments that may no longer be affordable.
Interest Only Lifetime Mortgage Flexibility
With the Flexible Lifetime Mortgage from Scottish Widows home owners may borrow what they need at the beginning and then apply for further advances as and when required rather than taking an entire lump sum in one go. This could work out more cost effective in the long run.
There are of course various conditions as with any mortgage or equity release plan; homeowners must be aged 55 or over to qualify for the Scottish Widows plan and over 65 for the Halifax product for example and the property must be in good repair, amongst other factors.
Interest Only Lifetime Mortgages: A Viable Retirement Mortgage Alternative
An interest only lifetime mortgage is a credible option for those retired homeowners who can afford monthly interest payments but do not qualify for traditional mortgage lending.
Bower actively recommends the Scottish Widows Flexible Lifetime Mortgage and the Halifax Retirement Home Plan as part of its portfolio of financial products for those in retirement, where deemed suitable after a full financial assessment.
Real Interest Only Lifetime Mortgage Case Studies
Real Case Study 1
Mr James, aged 68 years, recently raised £30,000 interest only on his property to gift to his daughter for use as a deposit on her first property with an interest rate of 4.99% fixed for 5 years equating to £124.75 per month. Mr James was assessed and found to be able to afford the monthly payments and this was seen as an advance of the daughter’s inheritance.
Real Case Study 2
Mr and Mrs Wilkinson, both 75 years of age, were coming to the end of their 25 year interest only mortgage term with their lender and were required to repay the outstanding £49,000. So they could keep their home, they remortgaged onto a lifetime interest only mortgage.
For more information on interest only lifetime mortgages contact Bower.
Equity release may involve a lifetime mortgage or home reversion plan. To understand the features and risks, please ask for a personalised illustration.
Bower is an FCA regulated independent financial advice company that offers specialist advice on equity release throughout the UK. For more information email [email protected] or call 0800 411 8668. Bower offers a no obligation initial consultation to homeowners considering equity release.
