Q My mother took out a lifetime mortgage for equity release in 2011. The amount borrowed was nearly £100,000 (about half the value of her home at that time) at a rate of interest of 7.54%. Following a stroke, she moved into a nursing home in December 2019 so I am now in the process of selling her house to fund the care home fees.
By lockdown in March, I had a buyer in place but activity has been frozen for the last three months. Meanwhile the debt repayable to the equity release firm is apparently increasing at £230 a week, which would reduce the equity available at the end of the lockdown period by over £3,000.
Do we know if the mortgage holiday payments will apply to this situation?
IG
A Because of the way that lifetime mortgages work, your mother has effectively been taking a mortgage holiday from the day the £100,000 of equity was released and the mortgage started. With the type of lifetime mortgage that your mother has, interest is charged on the loan each month but – instead of being paid to the lender – it is “rolled up” which means added to the original loan amount. Each time interest is added to the loan, the total amount on which interest is charged goes up.
This is the same as is happening with the misleadingly-named mortgage holiday with a standard mortgage. But instead of interest being added to the loan for its entire term – as with a lifetime mortgage – lenders tend to limit the period that interest can be rolled up – aka mortgage holiday – to three months. It also explains why when someone comes to the end of a mortgage ‘holiday’ he or she will find that the amount owed on the mortgage has gone up as has the monthly mortgage payment.
So to answer your question, mortgage holiday payments won’t apply to your mother’s situation. If taking a mortgage holiday meant the lender waiving interest payments for the holiday period, it might apply to your mother but, sadly, it doesn’t.
On a more positive note, if the amount your mother owes is more than proceeds of the sale, you won’t have to make up the difference because most lenders who adhere to the standards set by the Equity Release Council offer a no-negative-equity guarantee. This means that lenders promise not to make any equity-release customer (or their beneficiaries) pay back more than what the mortgaged property sells for.
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