Re-mortgaging from an interest only mortgage to a lifetime mortgage

Clients’ circumstances

A married couple in their early 70s, who had recently retired after selling their business

Issues addressed

Their interest-only mortgage would shortly come to an end. Although they now had large savings and individual pension funds, they did not have sufficient regular income to meet the affordability requirements needed for a standard residential mortgage.

They did not want to draw upon pension funds to repay their existing mortgage as this would push them into the higher rate tax bracket and a 40% income tax charge would be applied. Pension funds are also outside of their estate and would not be subject to 40% IHT in the event of their death. They also did not want to utilise existing savings as this was supplementing their income at the time.

They were happy living in their home and did not wish to move.

Tailored solution provided by John Lamb Hill Oldridge

Our recommendation was for a lifetime mortgage, as lenders do not use the standard mortgage affordability assessments with these types of arrangements.

As with most lifetime mortgages, there is no need for the clients to make regular repayments, as all of the capital and interest only becomes due when they die or move into long-term care. However, our clients were very keen to make regular payments to control the roll-up of interest and preserve the equity in their property. Should the clients wish to pay more than just the interest they could do so as the lender allows for repayments of up to 10% of the initial loan amount, without any form of early repayment charge.

The interest rate on their lifetime mortgage is fixed for life, so there should be no need for them to remortgage in the future.

This is an example of how John Lamb Hill Oldridge can assist clients with their long-term financial planning by putting in place equity release arrangements.