Flexible Payment Lifetime Mortgage Equity Release

We are starting to see equity release providers developing more flexibility on products which should make them more attractive as the population ages and many think about accessing equity capital from their homes to supplement retirement.

Reminder: 3 Types of Equity Release

• Home Reversion:  You sell all or part of your property to the equity release provider.  You can remain in the property for life or when you leave for residential social care.  You make no interest payments as the provider owns all or a share of the property and therefore benefits from any increase in value of the property.
• Lifetime Mortgage:  You borrow money based upon the value of your property.  You can remain in the property for life or when you leave for residential social care.  You make no interest payments as the interest on the debt rolls up and accumulates gradually increasing your debt.  The provider benefits from any increase in debt value and gets repaid when you die or cease to live in the property.  There are usually penalties if you wish to repay the equity release debt in full.  Some providers will allow drawdown of capital over the years i.e., you do not take the whole amount out of day one and only get charged interest on the amount you have drawn down.  Usually on a fixed rate, some providers will allow penalty free redemption after say 5 or 10 years.
• Retirement Mortgage:  Think of this like an interest only mortgage when you are a pensioner.  You may interest payments each month and therefore the original debt (amount borrowed/owed) never increases.  You can remain in the property for life or when you leave for residential social care.

Flexible Payment or Optional Payment Lifetime Mortgage

We are now starting to see providers offering Lifetime mortgages that you have the option of making monthly interest payments, it may be that you are still working and want to plan for when you finish.  For example, you have an existing mortgage and are making payments, but the mortgage term ends soon.  You move your mortgage to a flexible lifetime mortgage, continue to make interest payments and then in retirement you either continue to make interest payments or you stop payments and interest starts to accumulate. 

It is early days with these new options but an example of one requires you to be able to afford and pay monthly interest payments from day 1.  You can then miss up to 6 interest payments and once you have crossed that, the scheme automatically reverts to a normal interest accumulating lifetime mortgage where no further payment payments can be made.  This type of scheme may appeal to many, and we welcome the greater flexibility.

That said, we would be happier, given advances in technology for equity release providers to offer fully flexible schemes where you can make, stop or start interest payments and even over payments to reduce the debt at any time.

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