Can you remortgage a lifetime mortgage?
Although Lifetime Mortgage rates are fixed for the life of the contract, average rates have reduced considerably in recent years. If you already have a lifetime mortgage, a remortgage to a cheaper contract is a real possibility, but you need to be sure it is genuinely a good deal.
Your existing Lifetime Mortgage
If you have a lifetime mortgage, you might recall being told that this was a commitment that would not be repaid until the homeowner, or second homeowner for joint cases, died or was forced to move into permanent residential care. There would have been a warning about significant early repayment charges if you wanted to settle the mortgage early.
You may not have heard from your adviser or mortgage lender since that time but, given the development in the mortgage market, it might be worth exploring what those charges might be and if moving your mortgage would be advantageous.
Can I reduce the cost of my Lifetime Mortgage?
Lifetime mortgages have developed considerably over time. Regulation by the Financial Conduct Authority has become more focussed and the Equity Release Council, an independent body that is concerned with the wellbeing of Equity Release customers, has the subject under constant review. Also, the lenders themselves have made the mortgages more flexible over time, and often cheaper.
The interest charged on a lifetime mortgage is fixed for the term of the loan. This provides the safeguard that costs will not rise out of hand causing unknown damage to inheritance. However, the current interest rates for new Lifetime Mortgages are significantly lower, on average, than those that have been in place for the last few years.
For example, somebody with an interest rate of around 6.45% on a loan that started 5 or 6 years ago might easily find, based on the amount borrowed and the property value, that they can reduce the rate to approximately 3%.
If you apply that figure to the current average Lifetime Mortgage of £125,000, this reduces the interest in the first year by over £4,300. The benefit increases year by year if the interest is being rolled up.
Who might benefit from a Lifetime Remortgage?
Existing borrowers who are servicing the whole of the interest, effectively treating it as an interest-only mortgage, will see an immediate benefit in reduced monthly costs.
Those who are servicing part of the interest might now be able to cover the entire monthly cost, or they might decide to reduce their payments in line with the lower interest rate. If somebody is not covering any interest, a remortgage will help ensure that their beneficiaries receive a higher share of the estate.
Any time that a lifetime mortgage is being reviewed it is important to look beyond the current situation into the foreseeable future. Is there likely to be a change of income or expenditure that affects living standards? Is the property likely to need any work done? Is there anyone else in the family that is likely to need help? All of these are questions that should be addressed at the time.
Is it a good idea to transfer a lifetime mortgage?
The answer will be different for everyone but there are two distinct areas to consider. There will be costs involved with a remortgage and the homeowner will need to take those into account. Also, there will be some inconvenience in dealing with other parties such as solicitors. As always with a lifetime mortgage, you should consider involving your beneficiaries who will be affected by the decision.
Let’s look first at costs. Very few lifetime mortgage lenders require an arrangement fee. The new lender may require a physical or desktop valuation, but these can usually be arranged without costs. There will be a fee for a solicitor who meets the Equity Release Council’s standards for dealing with later life borrowers. For most people, this will be an amount of around £650 although this will increase if there are special circumstances, or it is a large loan.
If you have somebody living with you who is not a party to the mortgage, they might suffer the cost of independent legal advice. The adviser may make a charge to cover their costs, and this will vary from case to case. There may also be an early repayment charge for leaving the existing loan early.
You need to ask the adviser to compare the impact of continuing with the existing arrangement with the future position after a remortgage. If the adviser is unable or unwilling to help with that, find a better adviser.
You really should be able to say, how long will it take to break even when the cheaper mortgage will have paid for the cost of transferring the lifetime mortgage. Also, what is the potential benefit after, for example, 10 years?
As for inconvenience, you might decide that the potential benefit is not worth the trouble of having to deal with solicitors or have a valuer visit your home. It Is an individual choice but really only one you can make once the financial benefit is understood.
What should you do next?
If you feel a chat would help, feel free to give us a call, there is no obligation or cost to an initial chat. Once we have talked through your options you can decide if a transfer of your lifetime mortgage is something you would like to pursue or if you would prefer to stick with your existing arrangement. Either way, at least you will have been able to make an informed choice.