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Posts Tagged ‘Equity Release Remortgage’

Can Equity Release Schemes Prevent you Becoming an ‘Interest Only Mortgage Prisoner’?

Sunday, December 22nd, 2013

Can equity release schemes help unlock interest only mortgage prisoners?It seemed such a sensible thing to do at the time. Perhaps you were just starting out on the property ladder or you wanted to move up market to afford that dream home and as a result your income was stretched?

 

Back then an interest only mortgage was a perfectly reasonable option for a few years until your earnings increased and then you could switch to a full repayment mortgage. Or perhaps, very sensibly, you set up a repayment vehicle such as an endowment plan or you relied on the anticipated growth of your pension fund to take care of the mortgage in the dim and distant future?

 

Reaching retirement with an interest only mortgage

Life never quite works out as expected and here you are, approaching or beyond retirement, with a mortgage still outstanding and with a mortgage lender demanding to know how you intend to repay. Either you never got around to switching to a repayment mortgage or, by reason of poor investment performance or poor advice, your repayment fund has fallen woefully short of target.

 

You are not alone! Earlier this year the Financial Conduct Authority report that that almost half of those borrowers with interest only mortgages, approximately 1.3 million people, may not be able to repay their mortgage. And the average shortfall is estimated to be £71,000.

 

Can the high street lenders help?

So how have high street mortgage lenders responded? Mainly by applying higher interest rates to existing interest only mortgages or by forcing borrowers into repayment plans, usually very short term for borrowers over 60, with little regard to affordability or even existing and adequate savings plans.

 

So how do you break free from this “mortgage prison”?

Firstly, you must consider your options for the future;-

  • If you have savings, do you want to use them to reduce the outstanding mortgage, bearing in mind that the cost of the mortgage will certainly outweigh any return you are making on your savings?
  • How much of your savings do you want to retain as a cash emergency fund?
  • Do you intend to move now or within the next few years and, if so, will this allow you to repay the mortgage, cover all the moving costs and leave sufficient finds to re-house yourselves?

 

Secondly, if these options are not available to you and you want to remain in the family home, then you could consider an equity release mortgage, preferably after eliminating all other possibilities and following consultation with your family.

 

How can equity release schemes help?

There are two types of equity release plans approved by the Equity Release Council and they come with the following written guarantees:

  • You can stay in your home for life or until you go permanently in to care. In the case of joint applicants, this is until the survivor dies or goes in to care.
  • The plans are portable to other acceptable properties if you want to move.
  • No further monthly interest payments to make, unless you elect to do so.
  • You will never leave a debt to anyone due to the inclusion of a ‘no negative equity guarantee’

 

The two types of equity release mortgages are

  1. Home Reversion Plans – where you sell a percentage share of your home in exchange for a cash lump sum or regular income.
  2. Lifetime Mortgage Schemes – where you release funds secured on your property with the option to either roll-up the interest with no monthly payments, or to pay monthly interest in full or part.

 

Case Study example

A couple aged 66 and 65 living in their home valued at £300,000 and desperately wanting to repay an interest only mortgage of £60,000. The maximum they could raise from a standard lifetime mortgage would be 29% of the property value, i.e. £87,000. They have options and the following are examples of mortgage products currently available:-

 

a)      They can choose to borrow £60,000 (plus more to cover fees) to repay the existing lender and have the interest rolled-up for life with no further monthly payments. The valuation fee could be free with some of the current equity release deals available. The other costs taken by lender, solicitor and adviser could amount to approximately £2,000 which could be deducted from the loan. The interest rate fixed for life on equity release plans such as the Aviva Lifetime Flexi could be as low as 5.62% (5.80% representative APR) and, in addition, they could have ready access to a cash reserve if they wanted to borrow more in the future.

 

b)      They can choose to borrow the £60,000 (plus more to cover fees) and pay the monthly interest for life or for a fixed number of years. Dependent upon income, the lifetime fixed rate could be fixed as low as 4.75% (5.10% representative APR) resulting in a maximum monthly interest payment of £238pm. However, if this is too much for their budget they could elect for alternative plans such as Stonehaven’s Interest Select range & opt to pay a lesser sum each month (minimum of £25). The remaining unpaid monthly interest would be rolled up and repaid at the end. The fees are approximately the same, but a valuation fee of £252 would be payable with the Stonehaven application form. Hence, we have interest only lifetime mortgage options to suit.

 

A new breed of lifetime mortgages

Recently, a new form of lifetime mortgage has been developed to help those looking for the maximum possible release. The enhanced lifetime mortgage, or ‘ill-health equity release plan’ has been developed with the maximum release in mind.

 

Although the maximum equity release isn’t suitable for everyone, it has its place for those who desperately want as much as they can release for either health reasons or a ‘needs must’ basis.

 

They differentiate from standard lifetime mortgage schemes by assessing someone’s medical history. Essentially, the worse one’s health has been, the greater the potential release. These plans are underwritten & are offered by actuarially based companies with experience in the field of pension annuities where similar principles are employed.

 

Therefore, an enhancement can make the difference between be able to repay that interest only mortgage, or not, so enhanced lifetime mortgages should always be considered with your adviser.

 

Summary

Equity release is a sensible option to escape becoming a “mortgage prisoner” but expert advice from a qualified equity release adviser is always essential. Explore the alternatives first and discuss matters with your family to obtain a second opinion.

 

If you would like a free initial consultation to assess your interest only mortgage options, please contact Mike Vicary of Equity Release Supermarket, on 07795 195302.

 

Mike has successfully helped people make the interest only remortgage transition, thus enabling retirees to remain in their home & avoid becoming an ‘interest only mortgage prisoner’.

 

Is it Worth Reviewing My Existing Equity Release Mortgage?

Friday, May 4th, 2012

There are many reasons why you should sit down & review your existing equity release mortgage. Like any financial undertaking, products do evolve and change, hopefully for the better over the years, & equity release schemes are no different.

 

Here we look at the reasons for reviewing an older equity release mortgage, understanding the benefits & how to go about ascertaining whether you can remortgage your existing equity release scheme, or possibly staying put with your current provider.

 

Reasons for considering an analysis of your existing equity release plan

Let’s first have a look at the factors for consideration in the transfer, switch or remortgage of your current plan: –

  • Could it be because your existing scheme has now exhausted its maximum lending limits with your current equity release provider?
  • Maybe you now require additional tax free cash due to change in circumstances or a financial emergency has arisen.
  • Simply because you require a more competitive equity release deal than at present as you are concerned about the effect the roll-up & the compounding of interest that is affecting your equity release balance.
  • Finally, there could be better equity release plans available in today’s marketplace that were not available many years ago and you wish to take advantage of this to save your children’s inheritance over the longer term.

 

What has changed since you took out your original plan?

Dependent upon when your original plan was taken out, many lenders are now offering better, more flexible and more secure plans. The main influence though will be the fact that interest rates have dropped so significantly. Having experience of advising on the older Norwich Union equity release plans, I have evidenced the fact that around 10 years ago their rates were in excess of 8%! How times have changed.

 

Not only that, but my team of equity release advisers have similar experience of the older schemes which is invaluable in the decision making process & analytics of whether to transfer your existing lifetime mortgage or not. Having worked for the likes of Norwich Union equity release, Prudential, NatWest, Key Retirement Solutions & Aviva, we have the experience & knowledge to conduct a full analysis of the equity release pros and cons relating to a potential remortgage situation

 

How low have equity release interest rates fallen?

The fact is, if you already have an equity release plan, now is as good a time as any to re-evaluate it and shop around. Although not as low as conventional mortgage rates, equity release interest rates have fallen recently, but mainly due to competition in the equity release market. With their aggressive stance presently Aviva have become the darlings of the lifetime mortgage market with their lowest interest rate of just 5.92%. But it doesn’t just stop there. With a free valuation thrown in & £500 cashback this represents the deal of the century!

 

When considering a remortgage, interest rate alone is not the factor that determines your decision. The costs involved in setting up the plan are essential & these should be minimised in order to make the transition ads costs effective as possible. Therefore, the current Aviva Flexi drawdown lifetime mortgage plan is possibly the one plan that would be a viable proposition to switch over to.

 

What other factors must be considered other than interest rate?

It is important to make sure that any new potential equity release scheme is flexible and can be modified whenever your circumstances change. Equity release schemes must meet immediate needs, but equally, it must also be able to adapt to the future. Many new equity release schemes are much more flexible than their previous counterparts. For instance, drawdown lifetime mortgage schemes are now the most popular form of equity release mortgage currently available. This is opposed to the mainly lump sum mortgages that were available in the past, which were inflexible, could only be reviewed every 5 years & you had to budget on this basis accordingly.

 

When reviewing clients existing equity release mortgages, I may find several better and more suitable products on the equity release market today. However, it is not simply a case of switching lenders. Many existing equity release schemes may have clauses that make it quite binding in the long term and may incur additional charges such as an early repayment charge. This factor could be the sole reason whether to switch equity release lenders or not and deter offsetting any savings made from switching to a new plan.

 

It is important to consider several factors while comparing the existing equity release plan to a new one. Current interest rates, the current value of the property and the amount that needs to be borrowed. A switchover can take up to 60 days, so it becomes important to take into account interest rates over 60 days, setting up costs and the current redemption figure to work out the amount that can actually be borrowed.

 

What action should I take now?…

To review your existing equity release mortgage, you will need to consult an independent equity release adviser who can provide impartial, unbiased and experienced advice on different options that are available. A careful and detailed comparison needs to be made, considering various costs that will be incurred during a switchover, including setting up costs, application fees, solicitors’ fees and advice fees.

 

From significantly lower interest rates, to more flexible terms, switching to a new plan may have several advantages for yourself…and your beneficiaries. As a company who is remortgaged many older equity release mortgages we can speak and practice from experience.

 

For a free equity release analysis of your existing lifetime mortgage, contact the Equity Release Supermarket team on 0800 678 5159 or complete the online contact form today.

 

Why Now Might Prove to Be a Good Time to Take Out an Equity Release Plan: Given the Competitiveness of the Market

Monday, March 12th, 2012

Equity release schemes and equity release remortgage deals allow you to extract the equity tied up within the bricks & mortar of your home. The tax free cash is withdrawn usually by a lump sum or in the form of monthly income. This is a type of loan is for property owners over the age of 55 and is one of the best ways for such people & property owners to borrow money. Equity release plans typically do not need to be paid back until the sale of the home, or the borrower has died or gone into long term care.

 

Why have equity release schemes become so popular?

Homeowners opt for equity release plans for many reasons & their uses have extended beyond their original concept. Gone is the original ideology that equity release schemes would pay for pensioners essential living demands. Instead the flexibility & uses of equity release schemes have diversified into areas such as inheritance tax planning, moving home & many more besides.

They may have grandchildren entering university, and education tuition fees to pay; they may want to travel the world to meet distant relatives or loved ones; purchase a new car that maybe more economically friendly & cost saving; they may have a child that is soon to wed & needs a deposit for that first step on the property ladder; or they may want to consolidate their debts such as mortgage, loan & credit cards in order to free up & release some disposable income. These are all wonderful & purposeful reasons to choose an equity release mortgage. At the end of the day you just want to retire and relax  throughout the longest holiday of your life.

 

How to Compare Equity Release Deals

There are various providers and independent specialists and a variety of equity release remortgage deals available on the market. In the tough economic times, there are few property owners that would not benefit from an equity release deal; however many homeowners are unaware that they have a solution to their problems with an equity release loan. It is important for the retirees to understand how these UK equity release plans work and how to shop around and compare all lifetime mortgages & home reversion schemes to find the best deal available on the market.

The most convenient means to compare equity release deals is on the World Wide Web or more commonly termed – the Internet. There are many equity release providers and schemes that operate home equity loans. These include schemes such as roll-up lifetime mortgages that allow you to extract an initial lump sum with the interest being charged, & compounded onto the previous year’s balance. The flexible & now more popular scheme is the drawdown lifetime mortgage that allows you to take a smaller initial lump sum that is agreed upon at commencement of the loan and then further amounts as you wish. There are advantages and disadvantages to each.

When you compare equity release, you should work with a company that offers advice and guidance and one that has the contacts in the industry to present you with the best deals available on the market. Equity Release Supermarket has a comparison table that identifies the best interest rates, cashback deals & free valuations for you. Click here to visit the compare deals table.

 

All Equity Release Supermarket financial advisers are independent & FSA trained and accredited and it is essential that the deal that you opt for meets the FSA standards and SHIP regulations. This will ensure that you have a deal that is safe and fair.

 

Why Now Might Prove to Be a Good Time to Take Out an Equity Release Policy

A combination of the current crop of exclusives has provided a cheaper route to market for many new equity release applications. However, this is not the only reason for the equity release industry being more confident these days.

A recent spate of rate reductions for the 3 major equity release companies has resulted in some of the lowest interest rates for the past 5 years. Aviva’s recent reduction on its Lifetime Flexible drawdown plan has scuppered plans for Just Retirement to be the market leader. In fact Just Retirement has now thrown in the towel in its quest to become the cheapest lifetime drawdown scheme currently available & is now targeting other areas for domination.

 

 

The current exclusive Aviva equity release offered by Equity Release Supermarket is as follows: –

Product              –        Aviva Lifestyle Flexi Plan

Interest rate      –        5.92% fixed for life

Offers                 –        Free Valuation  PLUS £500 cashback on completion

 

If you wish to take advantage of this Aviva deal then request a quote  or contact the Equity Release Supermarket team on 0800 678 5159 where one of our advisers will be happy to assist.

 

 
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