Lifetime Interest Only Mortgage - explanation please!

suemacd22

My 85-year-old mother plans to sell her house and move into a bungalow. She has a lifetime Scottish Widows interest-only mortgage, split into two parts – one being variable and the other fixed rate, with £177,000 outstanding. She will be porting this mortgage. The paperwork mentions a lump sum from the lifetime mortgage, but I'm unclear when that's paid. Since I've only had repayment mortgages, I find hers confusing. We have a phone call scheduled next week, but I'd appreciate any explanations now, so I have a better understanding prior to this. Her current home should sell for about £310,000, and the new property may cost a bit more. Thanks in advance.

ACG

The paperwork mentions a lump sum in relation to what? Can you add some context?

suemacd22

There's a section on the paperwork under 'Benefits' that says "This lifetime mortgage will provide a lump sum of £122,254.60" That's all I know!

suemacd22

Just thought, that's probably the equity in her house.

webmasterpolo

Sounds very likely to be an equity release (ER) mortgage (SW do offer them) and the lump sum was the payment she received from the lender for adding the mortgage to the house. Effectively drawing down some equity to use without moving home. As it's now grown to 177 from 122 it would have been started a few years ago as interest on ER rolls up with no monthly payments, so when the house is sold it is paid back principal and interest. Do you have any of the original paperwork from when it started? This would be the easiest way to find out the details as there would have been an advice letter spelling out what was being done, why and how it worked.

HTH

-Web

suemacd22

Thank you. I'm going through and sorting out years' of paperwork now - unfortunately it's all in a bit of a mess to say the least!

Peter999_2

I went through a similar thing with my parents in law. Turns out they had been borrowing on these "lifetime" mortgages since 2000 (I just wish they'd mentioned it to me and my wife as we'd have helped them out).

Theirs was a set interest rate and unfortunately they seriously lost out when the interest rates plummeted in 2008/2009. When my father in law died the mortgage had to be paid off and the £25,000 they had initially borrowed cost £160,000 to pay off (she no longer wanted to live there) - it meant she couldn't afford to buy her own place so had to move in with my brother in law and pays him a rent instead.

Like yours, their finances were in a bit of a mess but I managed to get it all straightened out before he died. It's a lot of work but you do slowly get there. I was very upset with the amount of money it cost her, but frankly it turned out to be a good thing as she wouldn't have coped very well on her own (she was dreading living by herself) and now she's a live in babysitter for 3 kids which she loves. Hope it all works out for you and your mother.

dunstonh

https://forums.moneysavingexpert.com/discussion/comment/81992177#Comment_81992177

That would be the amount borrowed at the outset. I.e., she took £122,254.60.

whizzywoo

The lump sum is the amount she borrowed initially. As it is now £177,000 owing she must not have been paying the interest.

My husband and I have one. We pay the interest on it every month and a lump sum over and above the interest in order to reduce the debt. We do have the choice not to pay anything or just the interest but don't want to be faced with a large debt of compound interest on top of the original amount borrowed, in case we decide to move in the future.

silvercar

Is porting allowed? The £177k that she now owes would move to be a debt on the new bungalow. If the bungalow costs more, is she funding this and the moving costs from savings?

The downside is that there is a rule, brought in long enough ago that I hope she qualifies, that the total debt can’t rise above the value of the property. If she buys something more expensive there is more headroom and those savings used for the move could be gone forever.

MWT

https://forums.moneysavingexpert.com/discussion/comment/81992828#Comment_81992828

It depends on the exact terms of the loan, but yes an equity release product can often be ported subject to the new property be of suitable value and meeting all the other criteria typical for ER loans (location/commercial adjacencies/construction type etc. )

The issue is usually that if the interest has been allowed to roll-up there is often insufficient equity in the property to make the change viable…