Interest Select

Key Features

  • Client can now select how much interest they pay
  • Now available on our Standard LTV's
  • Extended the payment period to cover the lifetime of the mortgage
  • Simplified the early switch process Interest rates are the same whether they are paying the interest or not
  • Interest rates are the same whether they are paying the interest or not

We are delighted to announce the launch of Interest Select Options

The only product in the market where your client can choose to pay part or all of the interest on the loan on a regular basis.

Who is this suitable for?

People who

  • Need a lump sum for some particular reason
  • Have a source of income which enables them to service interest on the loan
  • Are concerned about the roll-up of interest eroding the value of their estate
  • May be struggling to keep up repayments on a conventional mortgage

Product Specifications

  • Money is taken as a straight Lump Sum – min £20,000, max £500,000
  • Standard LTV’s apply (see below)
  • Clients select their interest payment term
    • Minimum 1 year
    • Maximum life of the loan
  • Clients select how much interest they want to pay
    • Minimum of £25 per month
    • Maximum 100% of total interest payments
  • The interest rate charged is fixed for the life of the loan
  • If client elects to pay less than 100% of the interest the loan is effectively split into two parts:
    • The Interest payment part
    • The Interest roll-up part

Interest Select

Interest rates

Age 55-69 Age 70-74 Age 75+
6.50% 6.90% 7.10%

LTV's

Age 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70 71 72
Max LTV available (%) 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32
Age 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90
Max LTV available (%) 33 34 35 35 35 35 35 35 35 35 35 35 35 35 35 35 35 35

Impact of paying the interest - Examples

The following examples show how even paying a modest amount of interest for all or part of the life of the loan materially reduces the size of the rolled up loan.

  1. Example 1 graph

    1. Impact of paying varying levels of interest each month for the lifetime of the loan

    Based on a property value of £160,000 and a loan size of £40,000 at the age of 65, the following demonstrates the impact of repaying 50% and 100% of the interest throughout the life of the loan (@ 6.5% APR).

    In fact, if the client elected to pay just £30 each month for 25 years (totalling £9000 in payments), the amount owed to Stonehaven would be £21,000 less than if they made no monthly payments.

  2. Example 2 graph

    2. Impact of paying the interest for different initial periods

    Again, based on a property value of £160,000 and a loan size of £40,000 at the age of 65, the following demonstrates the impact of paying 100% of the interest for different periods (@ 6.5% APR).

Approach to Affordability

  • Stonehaven does not ask for proof of affordability because
    • LTV’s are low
    • The loan is repaid from the proceeds of the sale of the property when the client dies or moves into long term care.
  • What about the advice process?
    • This is normally established by a reasonableness check for sufficient excess income over expenditure
    • However, it could be extended to contributions from third parties. For example, the children. Such payments would not impact the customers’ means tested benefits (source Ferret)

Why Interest Select now?

In the current circumstances, Interest Select has a particular role to play in:

  • Enabling parents to provide additional funds to children so that they can get a higher deposit and therefore secure better rates on conventional mortgages.
  • One in three homeowners over the age of 55 still have a mortgage with an average value of £55,000. The Interest Select Lifetime Mortgage could be an alternative to these conventional mortgages; providing the client with the ability to choose how much they can afford to pay each month and also providing greater safeguards, especially if the client has the prospect of unexpected changes in income.