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Aviva introduce two new flexible mortgage options for its equity release schemes in 2014

Sunday, June 1st, 2014

Aviva Flexible Lifetime Mortgage options

We have recently discussed the merits of the new 10% repayment option which are part of Aviva’s new range of flexible mortgage options that have been incorporated into the Aviva Lifestyle Flexi Plan & Lump Sum Max – Now Aviva Accept Voluntary Repayments – Does this Change the Future of Equity Release?

 

These new flexible repayment features provide customers with the ability to manage the future balance of their equity release schemes. However, further additions have been made which are a credit to the forward thinking of Aviva’s hierarchy.

 

The two further equity release options now included into both plans are the enhanced lifetime mortgage option and an early repayment exemption charge.

Let’s look at each option individually and understand why & how each new feature could potentially benefit future Aviva equity release plan holders.

  1. Enhanced Lifetime Mortgage Option

Previously, only the Aviva Lump Sum Max plan had the enhanced (also known as impaired lifetime mortgage) equity release facility. This means that anyone who has a history, or has medical records indicating they meet a list of qualifying illnesses could benefit from uplift in the maximum equity release lump sum they could receive.

 

However, Aviva has now put a reverse spin on how this equity release enhancement can work. Rather than the enhancement working to increase the maximum lump sum, they have reversed this by applying a twist on how the enhancement can operate. Therefore, on the revised Aviva Lifestyle Flexi plan now, should illness permit qualification for enhanced terms, then the interest rate will be REDUCED. Consequently, retirees looking for a release of equity & qualify for enhanced terms will receive a lower interest rate than the normal equity release rate.

 

No enhanced mortgage company has considered this approach previously, so why does Aviva now & how does this work?

Qualification rules for the enhanced lifestyle flexi plan

Firstly, Aviva will request a Health & Lifestyle Questionnaire be completed which will ask questions to ascertain eligibility for enhanced terms. Such health questions include:

 

  • Height & weight including Body Mass Index
  • Do you smoke more than 10 cigarettes a day?
  • Have high blood pressure?
  • Suffer from diabetes & take medication?
  • Had angina or suffered a stroke?
  • Had cancer in the last 5 years requiring chemotherapy
  • Suffer from Parkinsons disease or dementia
  • Kidney, heart, lung, liver problems
  • Retirement from work early due to medical reasons

 

Should any of these, or combination of these establish qualification for enhanced rates then a Key Facts Illustration can be generated by your equity release adviser. If terms are then acceptable & an application follows, then as part of the enhanced lifetime mortgage application process Aviva will clarify with your doctor whether your stated health issues are on your medical records. No medical examination will be required.

 

Whereas previously the minimum rate for the Aviva Lifestyle Flexi was 5.68%, if enhanced terms are available due to ill-health, then the rate can be reduced by a further 0.05% to just 5.63% (rate @1.6.14). Not a significant reduction it may seem, however considering roll-up of the interest and the compounding nature of the future balance this could save your beneficiaries a considerable sum of money in their future inheritance.

 

Therefore, in summary a lower equity release interest rate can be achieved by qualifying for enhanced terms due to poor health on the Aviva Lifestyle Flexi plan which also comes with the drawdown option. Possibly the best equity release plan in the current marketplace due to the extra low interest rate, cashback of £1000, free valuation, drawdown facility & the strength of the Aviva brand.

 

*A point to note here is that not all companies offer the same enhanced rates. Check you can at least obtain rates that are independent & NOT from Aviva direct as they will not be lower than companies such as Equity Release Supermarkets.

 

  1. Early repayment charge exemption

Since I originally advised on Aviva’s equity release plans almost 15 years ago, there has always been a stigma attached to their calculation of early repayment charges which can be upto a maximum of 25% of the original amount borrowed. The link with government gilt rates can be also confusing to many customers when calculating how they work in practice. Nevertheless a qualified equity release adviser should be able to assist with such calculations.

 

News stories have also highlighted cause for concern with potential early repayment charges. These charges have always been shown on their Key Facts documents, however occasionally situations can arise whereby even the flexible nature of these schemes cannot compensate for some unfortunate scenarios.

 

One notable example of this was the news story where someone needed to move into long term care with their partner following in order to provide their care in the home. This left them with an empty home and little option other than needing to sell up as they cannot rent out or leave the property unattended. With this being forced on them, they could incur a hefty penalty for repaying the equity release loan early based on the ruling that the partner did not need to move into care aswell.

 

Welcome changes to Aviva’s early repayment charges

Following examples of unfortunate events as previous which hit the tabloids, Aviva have since changed their plans to account for such scenarios and this is welcomed.

 

On plans now, the rules have changed should clients with a joint Aviva lifetime mortgage need to repay the loan due to death or moving into a long-term care facility. If such an event occurs Aviva will now allow repayment of the lifetime mortgage free of any early repayment charge. However, the condition is that this is actioned within THREE years of one of the client’s death or the date Aviva is advised that one of the mortgagors requires long-term care.

 

Therefore, in the above scenario their plight would have be accounted for and NO early repayment charge would be applicable. This will apply to many other people where at such a stressful time, the last thing they wish for is for another penalty to be applied in their lives. A simple concept which can have such alleviating consequences and has therefore to be commended.

 

If you have any questions regards the points raised  in this article please ring Freephone 0800 678 5159 or email me at mark@equityreleasesupermarket.co.uk .

 

Equity Release – Can it Be Used As a Means Of Bridging Finance?

Wednesday, October 28th, 2009

The industry definition of an equity release scheme is an over 55’s mortgage, albeit with no monthly repayments & finally settled on death or moving into long term care.

 

It is now becoming more apparent that whereas equity release was once considered a lifetime mortgage, people ‘temporarily’ have the opportunity to take advantage of one of a providers’ shortcomings in its plan features.

 

As equity release has been designed to run for the rest of the person’s life, lenders have always seeked to include potentially heavy early repayment charges, should the equity release scheme be redeemed early.

 

This penalty could be either linked to the change in government gilt rates, expire after a set number of years or as we shall discuss; link to the Bank of England base rate. It is this feature that has provided a window of opportunity should people over 55 require short term borrowing facilities.

 

Experience has recently shown that retired clients are now struggling in retirement; income from investments has fallen, annuity rates are not favourable & pensions are falling in popularity with more reliance on fund performance & contributions than defined benefit schemes.

 

Increasingly more debt is also evident in this age group & control of finances is becoming more difficult to manage in the present economic climate, credit cards & loans seeming the preferred choice. Nevertheless, there are options available that can resolve these issues – part time work is becoming more apparent to increase retired incomes. Better management of debts & more consumer information being available as the silver surfers become more online savvy.

 

Advice on the suitability of equity release schemes will primarily discuss all these options & more. Should none of the alternatives be suitable from the client’s point of view, then at this point, equity release can be considered as a last resort.

However, another one of these options would be downsizing. This would involve the emotive issue of selling a property that may have been a family dwelling for a generation. However, in order to raise the necessary funds required this may be the correct solution. Unfortunately, this option may not provide an immediate resolution.

 

House sales are eventually beginning to rise, however this is marginal at present & for someone who requires funds as soon as possible, today’s marketplace could prove an obstacle.

 

But all is not lost – & this is where a temporary bridging facility is available & can be provided by a current equity release provider. Subject to eligibility, the Prudential’s equity release schemes can meet this objective. By taking equity release now with Prudential you would be benefiting from their link with the Bank of England base rate & early repayment charges.

 

In summary, the Prudential equity release schemes will only levy a penalty should the Bank of England base rate fall from inception to the time of repayment. With this rate at an unprecedented low rate of only currently 0.5%, it is highly unlikely (but not impossible) that the rate would be lower than 0.5% in the future. It can therefore be safely assumed that if either of the Prudential’s equity release plans are taken out, whether it be their single lump sum product or innovative increasing cash reserve plan, NO early repayment charge would apply.

 

Therefore, this can be great news therefore for people who have debt issues or need access to short term funds & not have it affect their tight budgetary constraints. With no monthly repayments required, clients can raise funds this year & after a 12 month period could repay in full or partially, with only a deeds release fee of £105 being levied. This could tie in conveniently with the property market improving around this period of time.

With Prudential equity release interest rates currently as low as 6.3%, this is an excellent time to consider this form of borrowing for eligible people over age 55. So while the Bank of England base rates remains at just 0.5% it would be advisable to consider this equity release product as a means of short term borrowing or bridging finance, depending on requirements.

 

In addition to this good news, Equity Release Supermarket have an exclusive offer from Prudential until 31st December 2009. We are able to offer clients applying for the Prudential’s Increasing Cash Reserve plan a free valuation & £300 cashback on completion. So all’s not so gloomy in the equity release market as some would suggest.

 

If you require further information on these topics please contact Mark Gregory on 0800 678 5159 or email mark@equityreleasesupermarket.co.uk

 
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