Should we take a Lifetime Mortgage (if possible] now or in 2 years time

jam0366

Hi, Looking for some advice/thoughts. We have 2 years left on an Interest Only Mortgage. Had to change to this a number of years ago due to health issues. We will have 68,00 O/S House value 160,000. I have 3 years and partner 2 until state retirement of 66.
No other debt. Any idea of the max that we could raise by taking a Lifetime Mortgage? Ideally we want to make monthly interest payments and the option to overpay occasionally.  Thank you.

ACG

Im not qualified to give advice on equity release (ER). So this is just me as a layman... 

I would hold fire unless you want to free up the monthly repayments. The interest rates on ER are not great but are usually fixed for the full term. As it is expected rates will come down in 2 years you might be able to get something better then. 

Every payment you do not make, the interest compounds. That means the balance goes up quicker and quicker each month. By holding off you are forcing yourself to make the payments and keeping the balance low. 

Although I suppose it depends on the rate you are paying now. Can you tie into a new deal if the rate is high? 

On a side note, my gran went into a care home a few years back as she has dementia. We went to 3 care homes, 2 of them were council run and one of them I would not have trusted them to look after a cup let alone my gran. The other was a little better but I would not have been happy. 

In the end we opted for another home, but her home will need to be sold to pay for it soon as it is quite expensive. Having the equity in your home as you get older might come in useful... I never realised how expensive a reasonable home was. 

jam0366

Thanks ACG for the input.We are on our building societies SVR which has climbed 7 times from 4.99% June 2022 to 8.4% on 24th September 2023. So worried as to when it will peak.

We cannot fix for the next 2 years as we don't meet the affordability criteria. Have done a bit of reading about compound interest so definately want to avoid that.  I guess we could downsize to a small flat if all else fails.

dimbo61

So why not  overpay every month ?
Your on Interest only and paying 8.4% ouch

ACG

jam0366 said:

Thanks ACG for the input.We are on our building societies SVR which has climbed 7 times from 4.99% June 2022 to 8.4% on 24th September 2023. So worried as to when it will peak.

We cannot fix for the next 2 years as we don't meet the affordability criteria. Have done a bit of reading about compound interest so definately want to avoid that.  I guess we could downsize to a small flat if all else fails.

Many people think we have hit the peak or possibly one more .25% rise left to go... I have given up trying to guess as I have realised I have no idea as do all of the people I have listened to over the years. 

You can usually tie into a new product without going through affordability with your current lender. I think the issue will be whether you can get a 2 year deal. If you have 27 months remaining you might be fine. If you have less than 24 you might struggle. 

MWT

jam0366 said:

Hi, Looking for some advice/thoughts. We have 2 years left on an Interest Only Mortgage. Had to change to this a number of years ago due to health issues. We will have 68,00 O/S House value 160,000. I have 3 years and partner 2 until state retirement of 66.
No other debt. Any idea of the max that we could raise by taking a Lifetime Mortgage? Ideally we want to make monthly interest payments and the option to overpay occasionally.  Thank you.

Nobody knows what the market will look like in a couple of years, and if you do decide to go down this path you'll find that the age of the youngest life is the factor upon which the numbers are calculated, so that would be 65 in 2 years time from what you've said.

If you were 65 now and proceeding with a typical Lifetime mortgage product with monthly interest payments and the the option to overpay, you'd probably be able to release around £40-50k. £68k is not likely to be achievable.

You are going to have to take advice if you head down this route and many sources for that advice will cost from a few hundred to a few thousand, but there are some options which do not charge for their advice, like StepChange Financial Solutions.

I would suggest you talk to them and see what they can suggest and to verify the amount you can realistically expect to release.

ACG is right to point out that the interest rates for these products are fixed and this feels like it could be a high point in the market, also waiting 2 years also makes a difference in how much you can release, so doing it now would further reduce the amount you could get, and you can't get one of these products without clearing any existing mortgage at the same time...

This sort of product should be your last resort though so do explore other options first.

 

jam0366

We have been over paying every month for several years as well as the odd extra to this on top, but as interest rates continually increased this extra has been greatly reduced.

jam0366

Thanks MWT for the advice. Step Change sounds good and I will speak with them.

Linton

From my experience in my late 60s a few years ago before the recent rise in interest rates…

There were 2 choices,
 - a RIO ( Retirement Interest Only ) mortgage much like your current IO mortgage with the mortgage ending when the house was sold after both of you had died or gone into care. The maximum loan was 50% of the house value. But we had to demonstrate that we could afford the interest from our guaranteed income.  In our case we were able to use drawdown as part of the justification but it required our IFA to negotiate with the underwriter as it seemed that the mortgage company had not considered how to handle it. It would seem that if you can’t meet the affordability requirement for a remortgage you will have problems.

 - full Equity Release  where the interest is rolled up into the mortgage.  This has the advantage for you that affordability is not an issue. However the maximum loan we could get was about 30% of the house value. We switched our 5 year fixed RIO to a lifetime fixed ER as I was convinced that interest rates would rise substantially, which they did.

For either of these options I think you need paid-for  Independent advice.

MWT

Linton said:

For either of these options I think you need paid-for  Independent advice.

You need advice, it does not have to be advice that you pay for though...

The lenders pay advisors when a mortgage product is taken, most advisors require additional payments from the borrower, but not all...

As far as I know it is only StepChange and a few High St. lenders that offer the advice without additional charges.

jam0366

Many thank to everyone for the input, we will take on board all that's been said.