This is potentially a moot point, but one that we at Viva feel strongly about!
It is well known that one of the biggest benefits of a Lifetime Mortgage is that you do not have to make any payments to the loan you take. The debt is paid back on death, or the need for full-time long-term care in a home (in the case of joint borrowers, the demise of the last survivor). Not making any payments is a choice is entirely down to the client to make.
When taking into account all that is going on in the world today, rising cost of living, fuel bill hikes, rising interest rates, not to mention the rocky property market right now. More and more over 55s are turning to Lifetime Mortgages to ease their way through these precarious times!
The reasons why our clients take out a Lifetime Mortgage, is not just to ensure that they have peace of mind through retirement, but also to allow them to continue to live in the home that they love where their memories are. Enabling them to avoid the hassle and upset of moving or leaving behind a neighbourhood that they are comfortable with and know their way around. The thought of moving is sometimes just too daunting a prospect, let alone the expense.
One of the biggest problems that we now face with Lifetime Mortgages is rising interest rates. Should we be advising our clients to consider making payments? Depending on our client's circumstances, their future plans and aspirations, absolutely yes! But this is not for all, as we must consider the client's ability to pay and their understanding of why as well as their particular circumstances.
We will always tell our clients that ‘it is in your interest to pay the interest and in
the lenders interest that you don’t’. This is why, perhaps now more than ever, clients should be assessing their future plans for the ‘what ifs' in life. We do not have a crystal ball to be able to say what our clients will be doing and where they will be in the future, therefore giving them the maximum options for their future must be a good thing.
If the loan we are considering offering our client is interest paid or even partial interest paid, the compounding interest will be kept, hopefully to a minimum, and allow for maximum opportunities in the future. It could be that today the interest rate is high, but there is nothing to say that it won't be lower in years to come and the ability to move the plan from one lender to another at a lower rate of interest would be beneficial to our clients.
Clients should also be looking at the option to move home in the future, should they decide that is what they want to do. We do not want to leave them in a situation where they become mortgage prisoners due to the fact that the compounding interest has eaten away their equity, at a rate much faster than they expected. This is about giving our clients maximum choice in the future and protecting their property wealth today, but still allowing them to live the life they want.
So, is it right that we advise our clients to make payments? We can only conclude “Yes”, for those that can afford to do so. For those that cannot, a full and robust conversation around the impact of compounding interest must be had, alongside looking at reducing the initial loan amount today, with more emphasis on the option of a drawdown plan for access in the future when rates are a little more palatable.
If you would like to explore the option of taking out a Lifetime Mortgage, and which option is right for you and your circumstances, please contact us today, to arrange a free no obligation consultation in the comfort of your own home.