By John Cossons, Mortgage Adviser at Anstee & Co.
I have recently been talking to clients who have an existing interest-only mortgage on their property. This is now due to be repaid and they would like to consider how to raise the money now that they have retired.
The options are that they take out a Retirement Interest-only mortgage. This is a lifetime interest-only loan that has fixed repayments and is assessed using earned and existing or future pension income. As the mortgage is for life it is assessed using the future income of the lowest earner.
Another option would be raising the money using a lifetime mortgage otherwise known as Equity Release. With this option, no income is required or assessed, and the loan amount is based on the value of the property and the age of the youngest borrower.
Unfortunately, in this instance the outstanding mortgage is greater than the standard advance available, so we have been looking at an alternative and are considering an enhanced lifetime mortgage. So, what does this mean?
An enhanced lifetime mortgage is where the lending criteria takes account of your health, and if you have or have had certain conditions the lender may be prepared to lend more.
How would you qualify for a health enhanced loan?
This will depend on the answers to a medical questionnaire, and as the underwriting for lifetime mortgages is based on life expectancy, if you have or have had a serious condition, they will consider your life expectancy to be reduced.
The medical questions are quite simple and cover things such as –
- Whether you smoke
- If you have or had cancer
- If you have or have had a heart attack or heart problems
- You have had a stroke or related issues
- You have high blood pressure
- If you have diabetes
- Your body mass index (BMI)
- If you have conditions such as diabetes, Multiple sclerosis, or Parkinson’s disease.
- If you retired early due to ill health
Other advantages of an enhanced lifetime mortgage.
Firstly, the interest rate for lifetime mortgages is based on the amount of the advance compared with the total amount that is available to you, for example, if you borrow the maximum available the interest rate will be higher than if you only borrowed half the amount available.
If you qualify for a health enhanced option the amount that you could borrow will be higher and could reduce the percentage of the whole that you need, in turn reducing the interest rate that you would be charged.
If you are considering the Guaranteed Equity option available with some lifetime mortgages this could increase the amount available, or again reduce the interest rate payable on the loan once you have applied this option.
You will still be covered by the “No Negative Equity” clause in all Equity Release Council approved schemes.
What are the disadvantages of an enhanced lifetime mortgage?
- Taking a lump sum could impact any means-tested benefits.
- Interest rates could be higher.
- Early repayment charges could be higher.
- Taking a higher advance could leave a reduced inheritance.
How Anstee & Co can help you with an enhanced lifetime mortgage.
We are a firm of Independent Financial Advisers (IFA’s). This means that the financial advice we offer is unbiased. Our experience covers all aspects of personal financial planning, including pensions, estate planning, protection insurance, investments and mortgages.
We would welcome the opportunity to discuss how we may be able to provide you with the financial advice and help you require. Why not contact us today for a chat. The initial meeting is at our cost and is without obligation.
We have offices located at-
- Kettering, Northamptonshire
- Stamford, Lincolnshire
- Towcester, Northamptonshire
- London, Greater London
Due to the present government guidelines regarding COVID-19 (coronavirus) and social distancing we are making full use of video conferencing facilities such as-
- Zoom
- Microsoft Teams
- Skype
- Facetime
We can also arrange a conference telephone call. The choice is yours. There is no need to visit an office as all work can be handled remotely. So, meetings can be arranged at a time that is convenient for you.
If you have any thoughts on this article, “Enhanced Lifetime Mortgage. Could you benefit from one?”, then we would love to hear from you.
Finally, the information contained in this article is for information purposes only and does not constitute financial advice. Anstee & Co. is authorised and regulated by the Financial Conduct Authority (FCA).
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