Case study: When equity release isn't an option

You may be aware that in the UK there’s an estimated 1.185million borrowers with interest only mortgages coming up for repayment*. A number of these people will have insufficient funds put aside to repay the loan. But what can be done with a client who needs to clear their interest only mortgage who doesn’t want to clear their debts with a lifetime mortgage??Financial advisers are in the solutions business, so what would you recommend? The obvious options are, if available, spending savings, cashing in investments or raiding a flexible drawdown pension pot. But there are new options coming out such as the Over 55s Unsecured Loan, offered by free2.

Here’s a recent client case study which shows how a Financial Adviser helped a client clear their interest only mortgage, without remortgaging their home.

The client had an interest only mortgage close to the end of its term, and the fixed deadline to repay the principal amount borrowed was looming. The client had made some preparations to repay the mortgage, however, ultimately their plans to make the final full repayment had fallen short. Even so, the client was heavily reluctant to remortgage. Over the years, they had built up some assets for their retirement fund, and they wanted to steer well clear of using these assets, for fear of having a much-reduced pension.

So, without remortgaging and without using assets earmarked for their pension, what could they do?

Client details

Client age: 67**

Current property value: ￡550,000

Existing interest only mortgage to repay: ￡65,000

Currently paying: ￡321.50 pm

Monthly Income: ￡3,400 net (This includes the state pension alongside a company pension)

?Client solution and benefits

By talking to their financial adviser and taking on an Over 55s Unsecured Loan for ￡65,000 over 8 years with a monthly repayment of ￡893.73, the client was able to:

• Clear their existing interest only mortgage
• Stay in their own home
• Keep their existing plans for retirement on track – leaving their funds untouched, and giving them greater confidence in their future
• Look forward to completing their loan repayments after 8 years – thereby enjoying greater disposable income once the loan is paid off

In addition, giving the client further peace of mind, the Over 55s Unsecured Loan was not secured on the client’s home and the balance of the loan will be written off if the client dies before the loan term ends. (Ts & Cs apply.)

We’re opening more financial planning opportunities for advisers to help them deliver better client outcomes, by embracing new thinking to finance in later life. For a copy of this case study and four others, visit us at www.free2.com/adviser/case-studies

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Nick Baker

Chief Marketing and Innovations Officer

free2

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(*Source: UK Finance June 2021)

(**Non-smoker?)