Adding value to equity release advice
When raising a lump sum, clients may have a range of options, such as raiding their emergency fund, dipping into a flexi pension, cashing in their investments or even downsizing. A good later life financial adviser will need to explore all of these before going down the lifetime mortgage route. But, having done this, if equity release is the only viable option, what happens if the numbers don’t add up? What happens if the property valuation is lower than expected? And, how do you help clients get to grips with the often very sizeable residual debt to the estate?
At free2 we’re working closely with later life financial advisers in our mission to help them deliver even more value to their clients. By combining the Over 55s Unsecured Loan which we’ve helped bring to market, with a lifetime mortgage, we have opened up the potential for new advice opportunities.
Here’s a recent client case study which illustrates how we helped a later Life Financial Adviser address the client’s reticence to proceed, because of the size of the debt to the estate.In this case study, the client had no other options than a lifetime mortgage with voluntary payments, meaning a rolling up of the monthly interest.
Client age: 62
Current property value: £600,000
Existing interest only mortgage : £110,000
Currently paying: £229.17 pm
Additional sum required: £110,000
Total required: £220,000
Equity release solution*
Maximum LTV: 36.94%
Maximum advance: £221,640
ER Roll up loan: £220,000 LTV 36.9% Interest rate 4.99%
Monthly interest rolled up: £914.83
Total debt to estate: £674,257
Heres the new picture
As the client was concerned about the level of debt to the estate, they were offered the Top Down option. Here the adviser reduced the lifetime mortgage advance by approximately the amount that can be provided through the Over 55s Unsecured Loan, based on their current monthly interest only mortgage payment figure.
Here’s the new picture:
The Over 55s Unsecured Loan
- Loan amount: £20,000
- Term: 13 years
- Monthly repayment: £196.22
Reduced ER loan by amount of unsecured loan*:
- £200,000 LTV: 33.33% Interest rate: 3.44%
- Monthly interest rolled up: £573.33
- Total debt to estate: £435,382
How much was saved?
The lower ER loan reduced the LTV and ER interest rate, which in turn made a dramatic difference to the residual debt to the estate on death. By taking a £20,000 unsecured loan the saving to the estate was a significant £235,875.
By embracing this new thinking, we are opening more financial planning opportunities for advisers to help them deliver better client outcomes.