Mr and Mrs Smith are coming to the end of the term of their existing interest-only mortgage, and have a shortfall of £60,000 remaining.
Their children have left home but trading down is not a viable option as their home is conveniently located for their work, and the spare room is used for their grandchildren to stay.
Their existing provider will not extend their term, and the re-mortgage options in the residential mortgage market are limited.
Both Mr and Mrs Smith have some reservations with traditional roll-up equity release – they are not comfortable with an increasing debt but are happy to continue using their income to service the loan. They would also like to repay the loan in full over time but are worried about having a ‘cliff edge’ repayment date. They do not wish to find themselves in the same situation again in 15 or 20 years.
The Retirement Mortgage would offer Mr and Mrs Smith the comfort of knowing that the capital could ultimately be paid off on death or going in to long term care. It would also give the flexibility to manage the debt by requiring interest payments on a monthly basis and allowing them to make overpayments using the Flexible Repayment Option to reduce the capital balance.
||£28,000 per annum
||£10,000 per annum
||Full State Pension at 65
||Full State Pension at 66
||£200,000 pension fund
||No private pension
The Smiths could be offered a £60,000 Retirement Mortgage. When Mr Smith buys an annuity with his pension fund, he will need to provide a dependant’s pension of at least 50% to ensure that Mrs Smith would continue to afford the mortgage in the event of Mr Smith’s death.
The Retirement Mortgage is a lifetime mortgage. The capital is not repaid until death or until the customer(s) enter into long term care. It has been designed as a flexible way of borrowing into retirement for those customers with retirement income who wish to repay the monthly interest.