Help / Advice

Tamman_2

Hi. I have a friend who has a mortgage which is interest only. When she took the mortgage out she was also supposed to take out an ISSA or similar vehicle to repay the debt when due, but did not.

The property is worth around 3 times more than loan amount. I have advised her that due to not having any beneficiary's that she may consider equity release to pay the amount owed but I do not know if this can be done when there is already an outstanding debt / mortgage.

Any advice please

Trillionaire

I don't know if this is much help, but, you can pay a fee, usually about £75 - £100 and switch your mortgage from interest only to repayment (capital and interest). I personally wouldn't go along the equity release route.

mr_mortgage

How long is remaining on the term of the mortgage? Is she due to retire before the term expires or soon after?

Tamman_2

She has about 5 years left on this mortgage. She would also like to retire around the same time.

dimbo61

could she carry on paying interest only for next five years and then
sell the property and buy or rent somewhere smaller ( sheltered /old persons
flat ). this would release the equity in the property and give her money to
retire and provide an income. GOOD LUCK

mr_mortgage

Tamman wrote: »

She has about 5 years left on this mortgage. She would also like to retire around the same time.

If she truly has no beneficiaries and there is absolutely NOBODY she would want to leave the money to, an equity release 'lifetime mortgage' (roll-up type) could be an option. The problem with this is that the longer you have the mortgage, the more and more you owe (accumulated interest) - to the point if you live a long time, you can get into negative equity. They are generally evil things, but if there is really nobody she would want to leave money to it would put her in a comfortable financial position for some time ... but if she wanted to move to a retirement home in a number of years time for (example) health reasons, then there could be ERCs to pay and of course she would have to repay the interest owed to the bank if she wished to cash in on the property. So, as you can see it's a risky business.

Other than that, her option is to sell and downsize - in this instance she retains much more safety insofar that she owns the asset and is not paying interest on it (or if not paying interest, accumulating it on the lifetime mortgage) which leaves her much more flexibility with the years ahead.

Finally, there is a Sell & Rent option - now, I have no experience of these in the retail market - only the commercial one (sale & leaseback). I would not be surprised if there were some real sharks in this market ... hopefully someone will be along shortly with more knowledge on this.

Finally, is there any way she could retire a couple of years later and save up enough between now and then to pay off the amount owed?

Mr M.