Repaying an Interest-Only Mortgage with Equity Release

The main qualifying criteria are;

• Youngest Homewoner is aged 55+
• You must own the property ( with or without a mortgage )
• Property is valued at minimum £75,000  ( £120,000  for ex council properties)
• Ideally property is standard brick built ( although some lenders will allow timber frame )
• If you have an existing mortgage – it must be repaid and cleared from the equity release

The amount you can borrow with a lifetime mortgage usually ranges from 20% upto 50% of the home’s valuation, and this is largely determined by the age of the youngest homeowner and the property type and value.    You can choose between a lump sum or a drawdown lifetime mortgage, which allows you to take a smaller sum at the start and then withdraw monies later as needed.

Yep, I hear that all the time,  however it’s mostly from people that havent done it, so they don’t have any real facts to base their thoughts on.. it’s just they ‘heard it from a mate down the pub’,  or it’s based on very OLD PLANS  from 10 or 20 years ago, that perhaps had a 25% Early repayment penalty or passed the debt onto their family.

The plans available today, are much more consumer friendly and are regulated by the FCA.

It’s still a big decision, so its definetely worth putting all those fears and questions to an advisor and getting the real truth, so you can make an informed decision for yourself.

Most lifetime mortgages are taken for the ‘long-term’  so people dont really intend to pay them back, until they pass away or go into a care home.

But for those that might wish to repay them then lifetime mortgage can offer the right level of flexibility.

Most typically have a 10 to 15 early repayment charge which might start at 10% in year 1 and slowly reduce over the 10 or 15 years to 1% and then 0%. But there are some Lifetime mortgages with much shorter penalty periods from 7 years or even 4 years and some with NO early repayment charges at all !  So by speaking with your advisor they can guide you to the RIGHT PLAN for you.

Don’t forget that all Equity Release Council approved plans also have the right to make optional partial repayments ( typically of 10% per year ) with no early repayment charges.

Most lenders now offer FIXED early repayment charges, and typically they run for 10 or 15 years, as follows

10% year 1, 9% year 2, 8% year 3, 7% year 4, 6% year 5, 5% year 6, 4% year 7,3% year 8, 2% year 9, 1% year 10…

however some lenders and deals only have  a 4 or 7 year ERC period and at present their is one deal that has ZERO  ERC  at any time !

Its worth remembering, the ERC is ONLY PAYABLE if you repay the Lifetime Mortgage, most clients are taking out the Lifetime mortgage and have no intention or liklihood of ever repaying it.

For those that do want to pay it off  then there are some safeguards in place:

• Most lenders allow 10 – 12% pa  to be repaid – penalty free
• Most have a 3 year ‘widowers clause’ , such that on a joint mortgage, if one peron dies, the remaining person can close the equity release down within 3 years – with no early repayment charge
• Most have a downsizing policy ( ask for details) 

The best thing is to speak with your advisor, and make them awre of what your future plans or hopes are, that way they can get the right deal in place for you.

Lifetime mortgages are different in that they dont need you to pass any affordability tests.  You can optionally choose to service the interest and / or make optional overpayments, but those aren’t tested against affordability.  if you don’t make any payments then the interest is simply ‘rolled up’.

In terms of credit history, there is also a  more flexible approach, obviously Lenders can’t lend to an undischarged bankrupt, but minor credit issues may well be acceptable to some lenders, its best to speak with an advisor so they can understand what credit history is there and source the right lender and deal accordingly

YES  you still own the house,  you still have to pay council tax and utility bills !!   it’s just when the property is eventually sold, a portion of the property value will have to go to settle the equity release mortgage balance. 

Yes you can, but the current mortgage will need to be repaid and cleared from the equity release funds. As the lifetime mortgage lender will want 1st charge on the property. see the page – Repaying an Interest-Only Mortgage with Equity Release

Lifetime mortgages are a ‘regulated mortgage’  and as such, any advisor advising on Lifetime mortgages, must do a full financial review, which includes asking for bank statements and proofs of income eg pensions etc.

The biggest reasons they are mainly asked for is to check

•  Do you for example have £100,000  in some ISA’s or premium bonds – in which case why do you need the lifetime mortgage ? why aren’t you cashing in the premium bonds etc  – having savings doesnt preclude you from accessing a lifetime mortgage – but a responsible advisor , should be at least asking ‘Why?’ do you want to do this is – if you have £xxx in the bank  ( ps I did have a previous client with £150k in savings – but after a discussion and satisfactory explanation, the deal was progressed & completed)
• is there a big history of  bad finance management eg gambling etc – in which case releasing more money to support a gambling habit would not be regarded as good advice.
• and the big thing is if you have income of say £8,000 a month – then why can’t you at least pay some or all of the monthly interest for a few years – to slow down / stop the roll up of interest ?

Yes, we have a wide panel of approved lenders that we work with. As we are not tied directly to a single lender, we are  free to seek and compare deals from all our lenders.

We search for the best options for each person that suit their individual financial situations.

Quest Finance doesn’t charge any upfront fees or charges.  we will meet with you and discuss lifetime mortgages and see if they are suitable or not.

Our Advice fee is ONLY payable should you complete an application with ourselves, and in most cases it’s paid out of the monies raised by the equity release.

Other fees are typically lenders fees  – which are normally either incldued in the deal and or deducted at completion.

Solicitors fee’s – we have access to specialist solicitors, that will also work on a ‘no completion – no fee basis’, giving you complete peace of mind, that tou are not taking on any fees or charges until the equity release actually completes.

No we are an impartial mortgage advice practice.  So we are not tied to any one lenders deals or criteria. 

So whether its a Aviva, Scottish Widows or a Legal and General solution – We can assess your case across all the lenders we work with. and find the best match.