Interest only mortgage - elderly parents

interest_only123

Hi. Mum & Dad moved 'north' a little while ago and an exploring moving back down 'south'. Unfortunately, they need about £70k. Suprisingly, despite approaching their 80s, they can get a £40k mortgage over 10 years. They are, therefore, £30k short. We are not really in a position to help them.

They are against equity release.

I was thinking of an interest only mortgage? But wanted a bit of advice before suggesting it if possible.

My thinking is,...

- they are not taking any equity out of the property (they're probably keeping it about the same considering the ncreased house price minus mortgage)

- their repayments on interest only mortgage would be less than the £40k on a repayment mortgage allowing them to save something towards the capital repayment at the end of the term.

Questions arise like...

- What is the qualifying criteria for an interest only mortgage at their age?

- Given they qualify for a £40k repayment mortgage, would they qualify for a £70k interest only mortgage?

- they could save money over the 10 years to pay back the majority (possibly not all) of the capital but what happens if they don't have all if the capital to pay off the mortgage after 10 years?

Thanks

MWT

If they have sufficient income then a Retirement Interest Only (RIO) mortgage may be a good answer for them as the capital is only repayable after they no longer occupy the property (Death or move into long term care).

Affordability is tested again them individually though, so the source of their income will be important.

They really need to talk to a broker who specializes in retirement products though...

interest_only123

MWT said:

If they have sufficient income then a Retirement Interest Only (RIO) mortgage may be a good answer for them as the capital is only repayable after they no longer occupy the property (Death or move into long term care).

Affordability is tested again them individually though, so the source of their income will be important.

They really need to talk to a broker who specializes in retirement products though...

Many thanks for your reply. I was not aware of this type of mortgage. Are you briefly able to explain a little about this product? For example, say they borrow £70k, I assume....
- they pay a monthly interest only payment
- if they move/pass away, is it just the £70k that comes out of the estate?

Their reluctance against equity release was the possibility of their equity being eaten away and reducing a potential heritage (which we are not fussed about) 

ACG

Not really my bag this, but it could be one for a broker. 
As suggested there are RIO mortgages (retirement interest only) or some equity release mortgages allow you to pay the interest each month meaning they work exactly  like an interest only mortgage but without the requirement to do so. 

MWT

interest_only123 said:

MWT said:

If they have sufficient income then a Retirement Interest Only (RIO) mortgage may be a good answer for them as the capital is only repayable after they no longer occupy the property (Death or move into long term care).

Affordability is tested again them individually though, so the source of their income will be important.

They really need to talk to a broker who specializes in retirement products though...

Many thanks for your reply. I was not aware of this type of mortgage. Are you briefly able to explain a little about this product? For example, say they borrow £70k, I assume....
- they pay a monthly interest only payment
- if they move/pass away, is it just the £70k that comes out of the estate?

Their reluctance against equity release was the possibility of their equity being eaten away and reducing a potential heritage (which we are not fussed about) 

Yes, the capital element (£70k in your example) is the liability which would have to be settled, typically from the sale of the property, so depending upon circumstances the estate may also be covering a small amount of interest for the period up to the actual sale.

As mentioned above, you can use an equity release product to achieve the same thing as they can allow optional or mandatory payment of the interest as your parent prefer.

Given their age I would suggest talking to a broker who handles these types of product and see which fits their case better as assuming the property is suitable they may have an easier path to equity release than to a RIO, unless their income is robust enough to satisfy individual affordability criteria.

Also the option nature of the interest payments with equity release may make them feel more comfortable with the committent.

With equity release there is a mandatory requirement for advice which comes at a cost ranging from zero to a few thousand so if they head down this path consider carefully where they will go for that advice and the costs involved.

 

kingstreet

I did reply in the other thread which has now been deleted. IIRC it was in order of the above questions;-

affordability and loan to value
dunno would use lender affordability calculators for that
RIO is for life, so they would have an open-ended term to repay mortgage by voluntary overpayments with any outstanding balance settled on sale/second death.