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Mark Gregory, Founder and CEO at Equity Release Supermarket
www.equityreleasesupermarket.com
Tel: 0800 802 1051
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Question
Remortgage versus equity release
I wish to release some of the money from my home to pay for renovations. We are planning to create a garden office/games room plus we hope to renew the bathrooms and kitchen.
I was having a quick Google for my remortgage options and I realised I may be eligible for equity release as I am 58. My wife is 52 – I don’t know if this impacts the situation.
I wondered if you could explain the pros and cons of each option? We have a mortgage which is currently four years into a five-year fixed rate and we pay 1.89%. Our full mortgage term has nine years left to run.
Obviously, a remortgage with additional money would offer a lower interest rate and equity release would cost more in terms of repayment. However, I wondered if I might be missing a trick in terms of any other benefits I was not aware of. I would value your guidance.
Answer
The question for many mortgagors between the ages of 50 to 60 is whether to continue on a residential mortgage basis, or switch to a lifetime mortgage.
This isn’t as straight forward as it seems, as there are many factors to consider.
Firstly, there is the qualifying criteria such as age.
Although what’s termed as ‘Later Life Lending’ now starts at age 50, this only encompasses Retirement Interest Only Mortgages (RIO’s) and retirement mortgages at that age.
In contrast, lifetime mortgages have a minimum age of 55 – and that applies to the age of the youngest applicant. Therefore, as your wife is only 52, unfortunately you wouldn’t qualify for a lifetime mortgage just yet.
Therefore, the only real options for raising additional funds currently, would be a further advance with your current lender, or to remortgage in the near future when your five-year fixed rate expires. As you’re four years into a five-year term, this could be something worth exploring soon.
As you haven’t provided any income details, current borrowing levels or the extra amount you require, I unfortunately cannot comment further.
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Question
Paying off the mortgage with equity release
My partner and I are both nearing retirement and we remain saddled with mortgage debt. We live in a three-bed semi-detached house in Cambridgeshire and it’s a lovely family home, so we don’t want to move or downsize.
Therefore, we are considering whether we could pay off the mortgage by releasing the equity already in the house? Do you know if this is allowed and, if so, how we might go about setting the ball rolling.
Answer
Recent retirement reports have highlighted the lack of retirement provision for many people in the 50+ age group.
The reason for this growing shortfall isn’t necessarily down to an individual’s lack of funding. It can also be due to change of circumstances, unemployment, change in employers pension scheme, or even poor investment performance/advice.
Nevertheless, prior to reaching retirement, it’s always a good time to assess how your retirement income will cope with your projected expenses.
Here at Equity Release Supermarket, we encounter such scenarios, and we pride ourselves on helping individuals and will start by analysing the client’s financial position.
Firstly, by conducting a client factfind will help us gain an understanding of your current financial standing and the level of debt you are referring to. Also, we’ll probe around your future plans and see what alternative options are available to you.
As we don’t have any supporting figures, I’ll make some assumptions – youngest age 62, property value £350,000 and as current mortgage of £80,000. A lifetime mortgage is to be recommended.
Firstly, as a lifetime mortgage can be the only charged registered against the property, any existing mortgage would therefore need to be repaid. If there are additional debts such as loans or credit cards etc that need to be consolidated, they will also need adding to the mortgage of £80k.
Based on the youngest age of 62, the maximum loan-to-value (LTV) ratio currently is around 39% of the property value. This would equate to a maximum loan of £136,500 which is sufficient to repay the mortgage and consolidate other debts as needed.
The finer details including amount recommended etc would be part of the advice process and something your Equity Release Supermarket adviser would assist with.
They would also point out the fact that as you are taking debts over the rest of your lifetime, they would advise the extra cost of borrowing this way, to ensure you are comfortable with this extra cost.
Once the funds from your completed application are released, the mortgage would firstly be settled by your solicitor acting on your behalf. Any unsecured debts to be repaid, would need to be settled by yourself from the remaining funds after the repayment of your mortgage.
This course of action would assist in your retention of your lovely family home. It’s also important to obtain independent equity release advice. Therefore, to discuss this further, please contact Equity Release Supermarket.
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Question
Why have we been declined for a retirement interest only mortgage?
My wife and I have been looking to take out a Retirement Interest Only (RIO) mortgage but have been informed we are not eligible. I am 75 and my wife is 72 but she has no pension because she stopped work after our children were born and we have been refused on this basis.
Is this allowed? I am wondering how to dispute it and/or if there is alternative route for us.
Answer
I’m sorry to hear of your situation with the decline of your RIO mortgage application.
RIO mortgages were introduced in March 2018 by the Financial Conduct Authority (FCA). Although they seemed the perfect solution for homeowners over the age of 55 looking to borrow into retirement, they haven’t become as popular as many had expected.
There are several reasons for this.
Firstly, strict underwriting measures require both parties to a RIO mortgage to be able to afford the mortgage payments in their own right.
This is called a stress test, and checks whether should one partner die, can the surviving partner continue to maintain the mortgage payments on their own income?
Unfortunately, this criteria seems to have been applied in your situation. You stated your wife although meeting age criteria, does not have sufficient income to meet any mortgage payments on her own.
There wouldn’t be any recourse to that lender as all RIO mortgage providers use this criteria to underwrite their loans.
However, some RIO lenders may consider an application if there are alternative repayment methods available. For instance, this could be a spouse’s pension paid to your wife upon your death, life insurance or even an investment portfolio.
Failing that, you may want to consider a retirement mortgage, which still works on the basis of income and affordability, however rather than running over your lifetime, instead runs for a fixed number of years.
Some of these retirement mortgage lenders do not take the second person’s income into consideration and will potentially allow a term up to age 90. This may therefore be a solution to your requirements.
A final solution could be a lifetime mortgage, as these do not require any income or affordability checks by the lender. They still offer a lifetime term (like a RIO) but come with the added security of a lifetime fixed rate.
Under new Equity Release Council standards, all lifetime mortgage plans now offer flexible monthly voluntary payments – hence you could manage a lifetime mortgage on an interest only basis – like a RIO mortgage would.
For further details on all these later life lending options contact your local Equity Release Supermarket specialist who can provide impartial advice on such financial matters.
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Question
Can I make overpayments?
I hope you can help me with question regarding repayments. I am seriously considering equity release to help my children fund weddings, house deposits etc – both my husband and I are passionate about offering this ‘living inheritance’ so we can enjoy seeing our money benefit them and their families.
I have retired but my husband has embarked on a period of ‘semi-retirement’ and is working as a consultant doing small projects here and there for former colleagues. We would ideally like, therefore, to find a later life mortgage scheme which allows him, on occasion, to make payments in order to reduce the interest. Is this something we could achieve?
Answer
Thanks for your question and voluntary payments are certainly a popular topic currently with many of our clients – particularly those needing to repay their long-standing interest only mortgage.
I started in the equity release industry with Norwich Union (now Aviva) when lifetime mortgage plans were initially launched around 1998.
Back then, interest rates were around 8.75% and the plans had none of the flexible features around today – such as inheritance and downsize protection, even voluntary payments.
It’s been great to see the evolution of equity release market. But the biggest impact personally has been the advent of voluntary payments.
In my old Aviva days, clients had no option other than to see their interest roll-up and compound over the years. Basically, they could not control their balance.
Voluntary payments now assist by allowing anywhere between 1 to an unlimited number of payments back to the lender each year, without penalty or affordability check. The only caveat is that any voluntary payments made in a year must not exceed a specified percentage of the original loan amount.
The majority of voluntary payment limits are set at 10% of the original loan. Hence, if you borrowed £80,000, you could repay up to £8,000 per annum with no penalty.
If you do exceed this 10% threshold in any one year, the difference in overpayment will have the appropriate early repayment charge applied to it.
There are also lenders with plans that offer 12%, 20% and even 40% voluntary payments. The latter will even allow you to repay the scheme in full over a three-year window with no penalty.
However, having the voluntary payment option present in a scheme, doesn’t mean you have to make any contributions whatsoever – the choice is entirely yours.
The obvious advantage is that if you do make payments, dependent upon the contribution made, it can either slow down your roll-up of interest, help you maintain a level balance, or even reduce your balance over time.
As you have correctly stated, voluntary payments would be ideal for you as your husband can make ad-hoc payments during his period of semi-retirement.
Voluntary payments are therefore a great retirement planning tool, as you can manage your future balance and your ultimate inheritance for your beneficiaries.
More information on voluntary payment plans can be found on our website. Additionally, plans containing the voluntary payment option are also featured in our comparison tables.
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