Reports recently in the Mail newspaper suggest that there are over one million pensioners still burdened with a mortgage and their average debt is £70k and that this is mainly as a result of home-owners being sold endowment policies with their mortgage. Lifetime mortgages could help these pensioners remove monthly mortgage payments.
Between 1984 and 1994, nearly 7.8million homeowners were sold endowments as a way of paying off their mortgage. Endowments were sold as investments that for a modest monthly payment would build enough cash, usually over 25 years, to repay the mortgage.
Ambitious predictions from insurers suggested that by saving just £50 a month they could reap a return of more than £100,000. In fact, they were stock market gambles that failed miserably. Borrowers repaid only the interest on their mortgage and when the endowment failed to deliver, faced bridging shortfalls running into thousands of pounds.
Since the start of the century, payouts on a typical 25-year policy have nosedived to a pitiful £30,000. A 2008 report quoted the average shortfall as £7,200. As many as 100,000 homeowners could have shortfalls of more than £20,000. Source: www.dailymail.co.uk
Lifetime Mortgages could help those with outstanding mortgage balances in retirement
Those over age 55 that find themselves unable to maintain repayments on their outstanding mortgage balance could turn to lifetime mortgages. Lifetime mortgages do not require monthly repayments although the interest rolls up and therefore the outstanding loan increases. At current interest rates these loans will double around every 12 years or so. If house prices increase then this does counter the rolled up interest but the danger is that all the equity could be exhausted in the event of longevity.
As with all equity release products it is important to seek independent financial and legal advice before committing a deal.
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