Equity Release Can be Used to Clear Interest-Only Mortgages for over 55s, reports Bower Retirement Services
15 Oct, 2012, 09:20 BST
LONDON, October 15, 2012 /PRNewswire/ --
Bower Retirement Services suggests equity release as a viable method of repaying outstanding interest-only mortgages
Prior to the recession, interest-only mortgages were a popular mortgage product due to the fact monthly repayments were as much as 40% lower than capital repayments. However, because the borrower never clears the outstanding capital the loan remains the same. Older homeowners with outstanding debts on interest-only mortgages have no means of clearing these debts without any repayment vehicle. As property prices slide, mortgage rates increase and economic uncertainty continues, older homeowners face home repossessions.
A way out is being suggested by award winning equity release advice firm Bower Retirement Services. It is suggesting homeowners with interest-only mortgages look into equity release schemes.
For homeowners already with interest-only mortgages but with no means to repay the capital, Bower Retirement Services says lump sum lifetime mortgages are among the most suitable options. These plans work by releasing a percentage of the property's value. This money can be used to clear the outstanding mortgage and thus eradicating monthly repayments. Equity release providers do charge interest on the amount lent, but this interest isn't payable until the property is sold.
A second alternative is a drawdown or lifetime mortgage with flexible cash release. These work as the above but with the addition of a regular cash payment at a frequency and amount chosen by the homeowners.
Obviously homeowners don't need any income for these two products, making them particularly appealing to retirees and those out of work. Interest is normally only payable when the homeowners die or move into permanent long term care.
However, if homeowners don't want to see the amount borrowed on their homes increase in size over time, Bower Retirement Services suggests interest-only lifetime mortgages for those homeowners still with sufficient income. Interest is paid each month so the value of the original loan does not get any bigger.
SOURCE Bower Retirement Services