To stay in their home once their current interest-only mortgage term matures
They want to start living a more comfortable life whilst continuing their careers as a teacher and planning consultant.
Jean and Graham want to stay in their home of 20 years once their current interest-only mortgage term matures in the coming months.
Jean and Graham, who are 55 and 60 years old, have built a great life in their four-bed semi-detached home in Dublin, which is worth €700,000.
After putting their children through university, they want to start living a more comfortable life whilst continuing their careers as a teacher and planning consultant. They have been told they cannot extend the term of their interest only mortgage and they’re worried about the outstanding €105,000 because they don’t have a capital repayment plan in place. Their original plan was to downsize, but because of the strong roots they’ve established in the community, and because the kids are still living at home, they’ve decided they’d rather stay where they are. They’re looking for a way to refinance their existing mortgage, while maintaining their financial stability into a retirement they have carefully planned.
Jean and Graham are looking for ways to raise enough funds to pay off their interest-only mortgage in full. They know the value of their home has increased and they have the option to sell up and downsize, but with grown children still at home and close links to the community, it’s not something they want to do. They’d rather stay in their home, with the option to reduce or stop making mortgage payments as they get older and become dependent on their pension income. They would also like the cost certainty of a fixed rate.
How the Spry Finance Payment Reward Lifetime Mortgage can help:
The Spry Finance Payment Reward Lifetime Mortgage is a loan, secured on a residential property, available to those aged over 55. This is ideal for Jean, whose age means she is not eligible for Spry’s other Lifetime Mortgage products, which are only available to the over 60s.
With a Payment Reward Lifetime Mortgage, customers commit to making monthly interest payments for an agreed Payment Reward Period between 1 and 10 years, during which, they are rewarded with a reduced interest rate, or Reward Rate.
At the end of this Payment Reward Period, assuming all payments have been made, the customer becomes eligible for a second Reward Rate which is fixed for the remainder of the loan. As with a standard Lifetime Mortgage, it only becomes repayable on the death of the customer or if they sell the property or move into long-term care.
In Jean and Graham’s case, they can continue to pay the interest on their Payment Reward Lifetime Mortgage for a minimum of 5-year Payment Reward Period as they have been doing for their existing mortgage. After the end of the Payment Reward Period, they can decide to stop making payments altogether. If they choose the latter option, the monthly interest will be added to the loan balance and will be subject to compound interest (as per the standard application of interest to a Lifetime Mortgage).
While Jean and Graham can afford to continue to make interest only payments with a Payment Reward Lifetime Mortgage, they can’t currently afford to make the €105,000 capital payment at the end of their current mortgage term. The Payment Reward Lifetime Mortgage will allow them to release some of the equity built up in their home to settle this debt, once they can commit to making interest-only payments for the duration of the agreed Payment Reward Period. After the end of the Payment Reward Period, when their income reduces in retirement, they no longer have to make the interest payments unless they choose to. This means that there is less pressure on their finances and they can enjoy their retirement as they planned it.
By choosing the Payment Reward Lifetime Mortgage Jean and Graham can:
PAY OFF THEIR EXISTING MORTGAGE: The couple can release some of the equity built up in their home to raise the amount they need to repay their existing mortgage and stay in their family home.
HAVE FLEXIBILITY FOR THE FUTURE: They can continue to make monthly interest payments for as long as they want. After the agreed Payment Reward Period they can still choose to make optional repayments of up to 10% of the original loan balance per year, without incurring an Early Repayment Charge.
PASS THE AFFORDABILITY TEST: Jean and Graham’s ability to make repayments will be assessed on their ability to make interest-only repayments throughout the agreed Payment Reward Period. If, due to unforeseen circumstances, they later cannot make all agreed interest-payments, missed payments will be added to the loan balance and a higher Contracted Rate will apply. There is no risk of payment arrears or risk of repossession.
HAVE MORE CERTAINTY: Fixed interest rates, both during and after the Payment Reward Period will provide Jean and Graham cost certainty over the lifetime of the loan. All three interest rates (i.e. Reward Rate, Second Reward Rate and Contracted Rate) are fixed and will be agreed with Jean and Graham before taking out their loan.
LONG TERM SUSTAINABLE SOLUTION: This may be the last mortgage Jean and Graham will ever need. Once the Payment Reward Period ends, they will no longer have to make repayments unless they choose to do so. As with a standard Lifetime Mortgage, the remainder of the loan will usually be repaid on the death or move to permanent long-term care of the customer(s).
This case study is for illustration purposes only. It is not a real customer example.
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