Responding to the growing interest-only mortgage crisis, Hodge Lifetime has launched a retirement mortgage.
Unlike a traditional equity release product, where companies offer mortgages based on a loan-to-value system, Hodge has developed an interest-only lifetime mortgage plan based on income.
A retirement mortgage is aimed at retirees who want to raise capital either shortly before pensionable age or after, with a view to maintaining monthly payments into their retirement.
Hodge’s plan is similar in concept to the Halifax Retirement Home Plan which was widely sold up until August 2011. The Hodge Lifetime Retirement Mortgage Plan aims to offer features akin to the Halifax Retirement Home Plan, but with an eye on the impending Mortgage Market Review in April 2014 and a more responsible lending attitude towards retirees.
Mark Gregory, director of Equity Release Supermarket said the Hodge Lifetime Retirement Mortgage can provide an alternative for retirees trapped in an interest-only mortgage: “Subject to meeting the Hodge Liftetime criteria, a homeowner could exit their existing arrangement and remortgage to the Hodge plan, thereby consolidating a new mortgage for life.
“We believe it could be particularly beneficial for 55-65 year olds who may be limited in their options because other interest-only lifetime mortgage schemes will only lend on age and property value.
“For example, the Stonehaven Max product would allow someone aged 55 to borrow a maximum of 19% of the property value. However, the new Hodge plan, subject to income verification, could allow someone to raise up to 50% of the property value.
“We believe this sort of product is vital for the market, meeting responsible lending guidelines whilst giving older homeowners more choice.”
How does the Hodge Lifetime Retirement Mortgage work?
In essence it’s an interest-only lifetime mortgage. The plan enables people between the ages of 55 to 70 to borrow money which is secured against their property. Monthly interest payments are then made to the lender, thus maintaining a level balance.
It’s available to people with sufficient disposable income to make monthly mortgage payments until the youngest borrower reaches age 80. This cautious approach means that income needs to be proven and must be payable for life.
Once age 80 is reached, a decision can then be made whether to continue with the monthly payments, or switch to a roll-up equity release scheme and cease any monthly payments.
As a form of lifetime mortgage, this retirement mortgage will usually be repaid upon death, or moving into long term care. At that point the house is sold, the proceeds of which repay Hodge Lifetime and the remaining balance passing to the beneficiaries.
Additional Features
• Flexible repayment option – in the first five years, up to 10% of the initial capital can be repaid with no penalty.
• Five-year fixed interest rate – initial rate of 4.75% which reverts to standard variable rate thereafter with the option to fix again, if required.
• Fixed early repayment charges – reduce year-on-year. Year one – 5% to Year Six – 0%
• Loan size – Minimum loan of £20,000 with a maximum of £300,000.
• Good credit history required
• No negative equity guarantee included
Initially, the Hodge Lifetime Retirement Mortgage is only being launched via a limited number of independent equity release brokers including Equity Release Supermarket.
