- Lenders are launching new lifetime mortgages for borrowers in their 50s and 60s
- They must pay interest for a certain number of years
- Request a copy of the Mail on Sunday’s equity release guide
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Equity release lenders are targeting borrowers in their late 50s and 60s with new products that allow them to pay off some of the interest during their lifetime.
Typically, borrowers with a lifetime mortgage – the popular form of home equity release – pay no interest or principal until their home is sold when they enter care, or until it is repaid when they die.
Borrowers can sometimes make payments to avoid accruing interest charges, but this is optional.
However, lenders are now introducing plans with mandatory interest repayments for a certain number of years.
Generation
This could lead to Generation X homeowners making monthly payments starting at age 55, the minimum allowed for equity release, until they retire, for example.
Eligibility is also assessed based on pre-retirement income. At retirement, the loan would convert to a standard lifetime mortgage and interest would accrue until they die or enter care.
Providers of these ‘lifetime mortgage loans with repayment terms’ include More2Life, Legal & General Home Finance and Key Later Life Finance.
Some younger borrowers have been denied equity release in the past because, with potentially many years to live, the value of their home at death may not be enough to repay the loan, plus accrued interest. The new plans could therefore attract more customers.
Current rates for equity release plans are between 6.5 percent and 9 percent.
Stuart Powell, from Advice Guru, says: ‘Compound interest can be a problem. An interest rate of 8 per cent with no interest paid can double a £100,000 debt in just seven years.
‘With new products, the debt remains the same if interest is paid monthly. Standard Life Home Finance and More2Life have taken this product innovation further.
‘Standard Life offers a discount of up to 0.75 percent on the standard rate if you pay the interest for up to 15 years.
‘With More2Life, some customers can borrow more if they pay the interest in the first years.’
The Mail on Sunday has a stock release guide edited by Jeff Prestridge. For a free copy, call 0808 239 7433 or visit mailfinance.co.uk/unlockcash.