CASE STUDY NINE
ARE MORTGAGE COSTS INCREASING TOO MUCH?

In a recent case, one of our advisers visited a 70 year old retiree who had come to the end of the fixed term of their mortgage with a High Street lender.  Although the £150,000 Interest Only mortgage still had 5 years left to run, the interest rate was moving from 1.99% fixed to a variable rate of over 8%!!!

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The client was terrified of what would happen as the new payments would be unaffordable to him. He could certainly pay more than he currently paying, but not 8%.

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The client had looked around and tried to get a new mortgage with a different lender through various mortgage brokers, but could not due to affordability criteria not being met.

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This client was very adamant that he wanted to continue to pay as much as possible towards the monthly payments of a new mortgage, but was unsure in reality, how this would affect his day to day living.

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When asked, the children said that they just wanted their dad to live a comfortable life and not worry too much about what might be left behind as a legacy, but he did worry!

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So Viva looked at all of the options, and there were two options open to the client.

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The first option was a Retirement Interest Only (RIO) mortgage where payments would have to be maintained, no matter what and the second was a Lifetime Mortgage where payment amounts could change at any time and where a drawdown or reserve fund could be created if required.

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Although initially the RIO mortgage ticked all of the boxes for the client, when given the options and discussing this with his children, he actually decided upon a Lifetime Mortgage.

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This was because the whole family preferred the flexibility around increasing and decreasing payments to suit the client’s situation at the time and because the client could create a reserve fund for emergencies like house repairs and a new car for his future.

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The interest rates were very similar and much better than the 8% being offered by the client’s current lender, and so he was very happy!