Interest Select Options - Peter and Janet


Repaying an interest only mortgage

Peter and Janet:

  • In their early 60s
  • Both have full-time jobs
  • Own semi-detached property valued at £275,000
  • Have an outstanding mortgage of £42,000

Janet and Peter’s bank has written to them, reminding them that their mortgage term expires in 12 months’ time and asking how they intend to repay the outstanding £42,000. They’re worried that if they can’t raise the capital to clear their mortgage, their home could be repossessed.

They decided to go to their current mortgage provider and ask for their mortgage term to be extended, but they were told that was not possible. They then asked other high street banks if they could remortgage with them, but again were turned down. They began to worry about what to do, and decided that they needed to see a financial adviser to find out more. Their financial adviser told them that because of their age, mainstream mortgage providers would be unwilling to help them.

Their financial adviser discussed the possibility of downsizing with Peter and Janet, but they decided against this as they didn’t want to leave their local community and they loved their home. Understanding this, their financial adviser started to talk to them about an interest only lifetime mortgage.

He explained that it operated in a similar way to their current mortgage. They could release some money from their home, and each month a fixed amount would be collected from their bank account by direct debit to service the interest. This would allow them to clear their mortgage shortfall without needing to move home, while allowing them to eliminate any interest roll-up on the loan and keep the loan balance level.

Janet and Peter decided to go ahead with the interest paying lifetime mortgage, thinking it was a sensible solution. They were able to clear their outstanding mortgage without giving up the home they had loved for 25 years, and had peace of mind knowing that they could stop making interest payments if they needed to.

Key benefits:

  • Janet and Peter can stay in their home
  • No threat of repossession, as long as they abide by the Terms & Conditions of the mortgage
  • Eliminates the impact of interest roll-up
  • They can continue to make monthly payments
  • Monthly payments can be stopped if their circumstances change

Important information

This case study is a worked example and is for illustrative purposes only. We have taken care to ensure the information is accurate, but we accept no liability for any of the information we provide that you decide to use or for the suitability of any of the statements made. Individual financial advice and tax advice should be sought prior to taking out a lifetime mortgage, as releasing equity can change the inheritance tax position of the borrower and their estate, as well as potentially altering their eligibility for welfare benefits.

Find out more about our Interest Select Options.

Canada Life Limited is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority.

Canada Life International Limited and CLI Institutional Limited are Isle of Man registered companies authorised and regulated by the Isle of Man Financial Services Authority.

Canada Life International Assurance (Ireland) DAC is authorised and regulated by the Central Bank of Ireland.

Stonehaven UK Limited and MGM Advantage Life Limited, trading as Canada Life, are subsidiaries of The Canada Life Group (U.K.) Limited. Stonehaven UK Ltd is authorised and regulated by the Financial Conduct Authority. MGM Advantage Life Limited is authorised and regulated by the Financial Conduct Authority.