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Posts Tagged ‘Interest Only Mortgage Calculator’

How the FCA Interest Only Mortgage Review May Impact Sales of Interest Only Lifetime Mortgages

Sunday, May 5th, 2013

May 2013 will be remembered as the wake-up call for customers with interest only mortgages. After all the talk about time bombs ticking down to zero, the FCA (Financial Conduct Authority) has now issued a regulatory warning, advising that action should be taken, and also how.

 

The interest only mortgage has been sold in bucket-loads for reasons a plenty. Ideally, an interest only mortgage should always have some form of repayment vehicle which is confirmed to the mortgage lender at inception.  This could be in the form of a low cost endowment, personal pension plan, regular savings ISA, stock and shares, investment bonds or even sale of 2nd home such as buy-to-let or holiday home. The only way of guaranteeing repayment of a mortgage is by choosing the capital & interest repayment mortgage route.

 

However, the relaxation of lending rules during the pre-credit crunch era meant that these mortgages where only interest is repaid were all too often taken due to being the cheaper option. It soon became apparent that these mortgages were not necessarily taken for the right reasons.  Not only that, where repayment vehicles were set up using pre-determined growth rates, these have fallen way short of their target growth rate.

 

These statistics have been confirmed by the FCA, who stated that almost half of the 2.6 million customers with a UK interest only mortgage won’t be able to clear their mortgage by the end of its term. In fact the average only interest mortgage balance will be approximately £72,000 by its eventual settlement date. These interest only mortgagors will somehow need to find this repayment amount, or end up having to sell their home and downsizing.

 

How Can Interest Only Lifetime Mortgages help?

This will depend upon at what stage of the mortgage term any retrospective action is to be taken. The best situation would be if remedial action could be effected during the interest only mortgage term itself. This would mean assessing the amount to be repaid & the time remaining for repayment of the original capital amount. Using a suitable interest only mortgage calculator, you can check to see how much you should be repaying in order to meet the mortgage outstanding. This will illustrate the size of the problem and what strategy is vital moving forward.

 

However, this is all & well if the situation can be nipped in the bud with many years remaining. Unfortunately, there are many mortgagors where the FCA interest only mortgage review has come too late. These are the people who have now reached retirement and realisation has sunk in that they still have no means to repay their mortgage. Mortgage lenders are reigning in these mortgages, many with no remorse.

 

Nevertheless, there is a small crumb of comfort for some as the FCA statistics do show that 85% of interest only mortgage cases maturing up to 2016 will have a 39% loan-to-value, or less. We also know from their data that over 48% people are over age 55 at this point. Fortunately for them there is a mortgage solution in the form of another type of interest only mortgage. Here is where the equity release industry can come to their aid.

 

Interest Only Solutions

An interest only lifetime mortgage works on the same principle as the interest only mortgage. The difference comes in the term, as the interest only lifetime mortgage will never need repaying until the last person has died or moved into long term care. Therefore, if affordability into retirement is not an issue, then committing to a life of interest only payments could prove a solution. Given the size of the interest only epidemic due to inflict itself upon the UK mortgage population this form of lifetime interest only mortgage could prove salvation for many who wish to keep their home.

 

The enormity of the situation could therefore be of benefit to the interest only lifetime mortgage providers such as Stonehaven, more2life and Hodge Lifetime. Where the applicants are aged over 55 and the loan-to-value criteria fits, then one of these equity release providers may be able to assist. With interest rates now closer to conventional mortgage rates than ever before, the differential in pricing is not that far apart.

 

In particular, where the discipline of monthly repayments are required, then the Stonehaven Interest Select Lite provides a solution whose interest rate begins at 5.99% (6.40% APR). The Stonehaven range of plans eventually rise upto 6.81% (7.3% APR) with the Interest Select Max, but offer a higher maximum lump sum.

 

As an alternative, if a more flexible repayment approach is preferred and the youngest applicant is 60 or over, then the Hodge Lifetime Plans may suit. The Hodge Lifetime flexible repayment option allows upto 10% of the original capital borrowed. Repayments can only start after 12 months have elapsed and a maximum of two payments are allowed each year thereafter. This effectively could provide an even better solution to interest only short fallers, as should the full 10%pa be repaid off the mortgage balance, then this would prove to be a new type of equity release scheme – a capital & repayment lifetime mortgage!

 

If you are one of the thousands of interest only mortgage customers with your mortgage company demanding repayment, then contact the Equity Release Supermarket team on 0800 678 5159 today or complete our contact request form.

What Can Be Learned by Using an Equity Release Calculator or Lifetime Mortgage Calculator?

Sunday, January 8th, 2012

Those researching equity release will find the use of an equity release calculator and lifetime mortgage calculator as really helpful basic starting points in conducting their research. These online tools are excellent for understanding what the potential maximum amounts of equity release that can be withdrawn. They also prove that research is paramount in establishing whether lifetime mortgages, home reversion or equity release schemes are the most suitable option.

 

The best equity release websites will provide multiple calculator options that answer the most common question – What is the maximum release available?
Always try & find an equity release website that offers a calculator for each type of equity release mortgage option. This is vitally important, as the equity release calculators on most sites only provide you with ONE answer. These sites are not painting the whole picture & may lead you to believe that equity release plans may not be able to help your situation. They maybe just trying to capture your contact information & are basically not providing the answers you require.

 

What is the Use of Knowing the Maximum Lump Sum?

The more comprehensive equity release calculators will advise the maximum lump sum. This is an important figure which can be used to understand what the total amount of equity release loan is available, based on the specific information included in the lifetime mortgage calculator. The reason of this importance is down to the fact that you may have a predetermined lump sum in mind & unless an equity release scheme can fulfil this shortfall, then your dreams can’t become reality.

 

Both equity release calculators & lifetime mortgage calculators require a certain amount of information regarding your current situation. More in depth calculators will go that one step further & can even tailor your answer, dependent upon health. The main two elements required for input are the value of the property & the age of the youngest applicant. This equity release calculator can then provide the total equity release maximum lump sum for both a standard & impaired life arrangement.

 

Different Types of Equity Release Calculators

These will be a lifetime mortgage calculator, home reversion calculator & an interest only mortgage calculator. Of these, the lifetime mortgage calculator should provide two answers – good health & poor health (enhanced).

For an enhanced maximum calculation i.e. where there has been a history of ill-health, then further information will be required to determine whether eligibility will exist. The enhanced equity release calculation will offer a higher lump sum than standard. The assumption by the lender is that due to the ill-health, the term of the equity release mortgage will be shortened. Therefore, as the interest roll-up period will less, then the lender can release more & thereby protecting itself from the no-negative equity guarantee.

 

When looking at this equity release maximum lump sum provided by equity release calculators such as the one above, it is important to note that there are a variety of options available to the customer, from that point. Within that maximum, a customer could find an interest only mortgage or one of the many other equity release products that are currently available on the market.

 

Equity release schemes often provide these calculators because they provide such important initial research for customers. People over 55 years of age who have invested in property may find that interest only mortgages and other equity release products are excellent for the release of equity from their homes without having to sell. This keeps the property in the family or inheritance chain, but also allows the ability to recover some of the money invested or grown in value over the years. There are a range of equity release products available, and it is best to discuss needs with an independent financial advisor. However, before doing so, it is useful to do some background research on what options are available and an equity release calculator, or a lifetime mortgage calculator, is a great place to start.

 

To access the Equity Release Supermarket calculator click here or call freephone 0800 678 5159.

 

 
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