Lifetime mortgage borrowers could miss out on valuable savings if they do not switch their offers to a lower interest rate. The number of older borrowers who traded their lender for a cheaper offer fell 34 percent in the first three months of this year.
Figures released by the Financial Conduct Authority (FCA) also show that the total number of lifelong mortgage changes has fallen by nearly 30 percent over the year. In the twelve months to March, the bills decreased from 1,824 to 1,297.
Lifetime mortgage specialist Responsible Life says that means roughly four out of 100 customers with stock releases of more than 300,000 outstanding mortgages switch each year.
Bill of exchange and prepayment penalties
Steve Wilkie, Chairman of the Board of Directors of Responsible Life, says many people are discouraged from switching their lifetime mortgage lender because they run the risk of paying significant prepayment penalties. Lifetime mortgage products are designed to last a lifetime and therefore carry higher prepayment penalties.
However, says Wilkie, younger borrowers could save by switching – despite repayment fees.
“If the new loan is left longer, it can provide the savings that make the switch worthwhile.
“This is why rescheduling may be advisable for a customer aged 75 years,
but not recommended for another client under the age of 85 – even if its
The product and circumstances are otherwise the same. “
When to Change Your Lifetime Mortgage Lender
If the savings available over the expected term of the mortgage do not exceed the value of the early repayment penalty, no advisor will recommend switching.
Mr Wilkie says the fee, life expectancy, and the difference in the available interest rate are used to help decide whether it is worth switching.
He points out that most lenders’ loan-to-value (LTV) bands have also improved as interest rates have fallen.
Says Mr. Wilkie, “That means homeowners can get more out of their property at a lower interest rate. If real estate price growth is also taken into account, the available LTV band can improve even further. The lower rates are partly due to the positive cycle of larger volumes and increased competition. The popularity of lifetime mortgages has exploded in the past five years and product flexibility has never been so great. “
Gary Hemming, Commercial Lending Director at ABC Finance, agrees that lifetime mortgages can be a great tool for raising cash in your later years. However, it is important that borrowers consider how much they owe in repaying the loan and how this will affect the value of their estate.
Since there are no repayments to be made, compound interest means that the amount owed increases faster and faster every year.
Says Hemming, “This often leads to a huge headache across the board, with people often owing much more than expected.” He urges anyone looking to take out a lifetime mortgage to seek independent professional advice.
He adds, “Never feel pressured to keep going. Take the time to fully understand all of the recommended products and get a second opinion or speak to your family if you don’t want to make the decision on your own. “
Case Study: Lifetime Mortgage Helped Us Create A Dream Home
Graham Goodier and partner Lesley Fogarty renovated to create their dream home. The couple, who live in Newport Pagnell, Buckinghamshire, released £ 159,125 from their £ 475,000 four-bedroom bungalow.
Graham, a former electrician, said the renovations would not have been possible without a lifetime mortgage.
“A retirement mortgage wouldn’t have given us the money we needed. The lifetime mortgage allowed us to borrow more and it worked very well for us.
“I think lifelong mortgages are the best thing since sliced bread. It’s a brilliant way to do a renovation and it can add so much value to your home.
“In a way, it’s the most responsible way to use a product like this. This money has not gone away. We have a nice bungalow now and I can see the money all around me. It’s awesome. We appreciate it all, every day. It is our dream home. ”
The bungalow has now been valued at over £ 600,000. The couple sold both their property and their money to buy their home.
Graham sold a two-bedroom bungalow and Lesley sold a two-bedroom townhouse. Graham had a small lifetime mortgage on his bungalow which he repaid with a small early repayment fee.
He adds, “I had a lifetime mortgage on my bungalow so I knew the ins and outs. I had considered it years earlier as well, but it was the “no negative equity guarantee” that changed everything for me. It is important to me that my loved ones are not influenced in any way. “
Graham lives for the moment and wants to enjoy life after surviving two heart attacks and prostate cancer.
“I really got through the mill and determined to enjoy life. I am not worried about anything.
“Lesley has no children and my children are financially secure. They told me to just enjoy life while it lasts. “
Lesley, who previously worked in banking and has been with Graham for 10 years, adds, “We saw the potential of the bungalow and are very pleased with what we’ve done here.
“Borrowing the money with a lifetime mortgage helped us achieve their transformation.”