We all hope to own a home someday, but sometimes we need products like interest only lifetime mortgage loans. Some of us are financially able to purchase a home while some of us need to take a mortgage out in order to acquire a home for us and our family. Some of us still are able to acquire a mortgage early in our lives and others acquire a mortgage later on in their lives.
The later we acquire a mortgage the more chances there are of us still having a mortgage to pay off in retirement. Paying off a mortgage in retirement can be really difficult, especially based on the fact that retirees no longer have a steady source of income. To these people, an interest only lifetime mortgage can offer a lifeline. An interest only mortgage can help them to repay their mortgage especially if they need to repay it at short notice.
Research Indications on Mortgages
As stated in DrawdownEquityRelease.com research has shown that almost 50% of the people who choose an equity release do so to pay off the current mortgage. Most retirees prefer equity release schemes such as the lifetime mortgage scheme because they can obtain a lump sum amount of money against their home. This amount does not have to be repaid during their lifetime. Only after their death are they required to repay the mortgage. This is normally done through the sale of their property.
This type of mortgage is only usable for those who are 55 years of age or older. It does provide the opportunity to repay the original mortgage and ensure there is a lifetime to repay the new mortgage. Lump sum lifetime mortgages are just one sample of the options available, as is the interest only type of this mortgage. Since the interest is paid the principle remains the same at the end, unlike the traditional lump sum mortgage that has compounding interest.
FCA (formerly FSA) Changes to the Market
As the FCA or the Financial Conduct Authority has clamped down on interest only mortgages, many mortgage lenders such as Nationwide, Santander and Woolwich are not extending their mortgages upon the client moving house or at the end of their normal term. This leaves most retirees in the lurch as they have either to sell the house or find alternative finance which is difficult to come by in retirement.
However, certain companies still offer a retirement solution that provides retirees with the funds to pay off their current mortgage so that they can enjoy their retirement years. Two of these companies worth mentioning are Stonehaven and Leeds Building Society. Retirees can obtain interest only lifetime mortgages as well as other forms of equity release schemes from these providers to pay off their current mortgage but also to finance holidays, home improvements, or a new car.
Home Reversion Option
While lump sum and interest only are two types of loans available for retirees, there is also a different option. In this different option the house is sold in part. It might not sound like a great deal, after all you often want a mortgage to avoid selling your home, but the parameters of the sale at least ensure the house is still partially owned by you for your lifetime. It does not leave the home behind for the family; however, you get to stay in the home you paid for over a lifetime. You also get to stay in the house rent free. You do have to keep the house up, but in general there is no repayment worry.
At the end of this option rather than repaying a mortgage through the sale of the house, you sell the remaining portion of the house and that is an inheritance for your beneficiaries. This is a pretty much guaranteed inheritance as it is based on the portion of the house you sell originally.
Differences between Lifetime and Home Reversion Equity Release
Home reversion is a scary prospect for those who just spent their life getting a mortgage paid off to own their home. It is also a product that requires the equity release be used to pay any outstanding mortgage in full as you are not allowed to have a mortgage on property you have partially sold.
With interest only lifetime mortgage choices you at least have the option of how to use the money albeit it is wiser to ensure all other financial products are paid for. The point of taking out any equity from your home is to have a comfortable retirement, so speak with advisers, examine the few interest only products on the market, and choose what is truly best for you. For impartial advice visit: www.EquityReleaseLoans.com
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