On the cusp of retirement and yet your mortgage is not repaid in full? Numerous Londoners face this situation and with the Mortgage Market Review (MMR) restricting lenders it is becoming difficult to see what the future can provide in the way of comfort. For those who had an endowment on an interest only mortgage, most are finding it has fallen short to cover the entire amount owed. Others chose a different mortgage with no repayment vehicle. Trying to locate a solution for your retirement years is getting difficult for those over 60. Unless you consider the pros and cons of equity release, which is one solution to the problem of mortgages into retirement.
Solutions for Londoners
One option you have is to sell your home. When you sell your home the market value can take care of what is left of the mortgage. You would have money left over from the sale to live on during your retirement or to find a more modest location that you can buy outright. This solution is extremely dependent on the value of your home.
The loan to value, meaning the amount you have left on the home minus the market value of your home is the “equity” or the take home cash you can utilise to purchase a new home after a sale. It is this same equity that could benefit you in an alternative mortgage plan.
Equity release for retired Londoners provides you with a solution to pay off the mortgage, convert the mortgage, or to gain equity from your home to use for living expenses. Taking an interest only lifetime mortgage in London is a great option because you can remortgage your current debt and pay only interest on the loan for your lifetime. It does take disposable income to make the interest only payments however.
If you do not have disposable income there is always the roll-up option where you rollover your existing mortgage’s interest each year and the balance accumulates, or compounds. However, even the roll-up lifetime mortgage can now come with the option of repaying 10% of the original amount borrowed each year with NO penalty. These new innovative equity release products are provided through Aviva or Hodge Lifetime.
A third option is an enhanced lifetime mortgage. You could tap into 25% more cash by having current or previous health problems. If you are a smoker, have diabetes, high blood pressure or a more serious illness such as angina, there is a chance you could gain extra funds to repay your current mortgage and still have some equity to utilise during the rest of your lifetime. The extra tax free cash an enhanced lifetime mortgage could bring could make all the difference to the extra yard in monetary terms that Londoners require financially.
Qualifying for Equity Release Schemes
An important qualification to use roll-up or interest only lifetime mortgages when you have a current mortgage is for the loan-to-value on your property to be under 50 per cent. Current age of the youngest homeowner plays an important factor in loan-to-value (LTV) as you can learn from Stonehaven’s Interest Select range of products.
If you are 55 years of age, with Stonehaven’s Interest Select Lite plan you are offered a much smaller loan-to-value of just 11%. Whereas someone in their 80s could be closer to the 45 per cent mark. This concept does not work for everyone, but it is certainly an option to consider. Stonehaven’s Interest Select Lite for people of London Boroughs would offer the lowest interest rate of just 5.94% fixed for life.
However, Stonehaven have a four tiered lending structure for those requiring a higher loan-to-value. The Interest Select Max does as the name says on the tin; provides the maximum loan-to-value, hence a higher release for this interest only lifetime mortgage plan. Therefore in comparison to the Lite plan, at age 55 you can raise upto 19% of the property value, yet 44% once you reach into the 80’s age group. Therefore, people looking for an interest only mortgage in London Stonehaven’s range of plans offer security of rate, monthly payments & control over the future balance of their inheritance.
News on Lifetime Mortgages
Before you decide if lifetime mortgages are right for you and your interest only mortgage conversion, consider some recent news. In 2013 the barrier of £1 billion was broken for the total amount of equity released to UK homeowners. The average amount received by each consumer was £56,000. The individual amount was up 7% from 2012.
Figures from the Equity Release Council have shown that equity release in London has grown due to the interest only mortgage repayment theme used as a way out for mortgage prisoners where the mortgagee is demanding repayment. Londoners now have salvation in the form of equity release schemes to relieve themselves of the pain of having to sell, in order to repay lenders foreclosing on debt repayment.
Pros and Cons of London Lifetime Mortgages
Pros
• You receive tax-free cash
• You stay in your home for as long as you desire
• Based on the plan you choose, a guaranteed inheritance can be left for your beneficiaries after you have gone
• There are no regular payments required, except for interest only mortgages. The loan is only repaid once you decide to sell the property, upon your death or moving into long term care.
Cons
• Equity release could affect some state benefits such as Pension Credit
• Your estate value is reduced in terms of inheritance
• Early repayment charges could apply if the loan is repaid too early
• Interest is charged on the loans, thus the overall debt grows if roll-up is chosen, limiting the release of future cash advances.
Speak with a Representative
Before you let the pros and cons of equity release scare you or convince you this is the perfect product for you, speak with an qualified equity release representative. An independent London equity release adviser can assess your situation, calculate possible solutions, and help you look at the products objectively.
Rationality can be hard to maintain when you live in the same London property you also raised your children in. While the pros and cons of equity release help in decision making, do not forget that sometimes selling your home could be the best, but not always emotionally the best option for Londoners.