Search Results for "Interest only"

Interest only Mortgages

The Society’s maximum LTV for an interest only (or part interest only) loan is 75%.  The Society will only consider interest only (or part interest only) loans which have a credible repayment strategy in place.

The Society is unable to offer any advice on the suitability of any protection or investment products.

Below is a table of acceptable repayment strategies:

Repayment plans cannot be accepted if they include the name of anyone not named on the mortgage.

Unacceptable repayment strategies:

• Inheritance;
• Sale of the mortgaged property;
• Commercial premises or sale of a business;
• Future conversion to a repayment mortgage (except in the case of a new self-build mortgage application).

Interest only mortgages – Acceptable repayment strategies

Repayment Strategy – Endowment policy(ies)

With an endowment policy repayment strategy, interest only is paid to the Society and a monthly premium paid to an insurance company for the policy which pays a lump sum at the end of the mortgage term or on death if earlier.  The lump sum is used to repay the mortgage.  The lump sum at the end of the mortgage term is not guaranteed and may not be enough to repay the mortgage.  The life cover or the lump sum payable on death is usually linked to the amount of the mortgage loan.  The policy can be written in joint or single names. Repayment strategies cannot be accepted if they include the name of anyone not named on the mortgage.

The Society will require a copy of the latest projection statement dated within the last 12 months.  The Society will allow up to 100% of the middle growth projected outcome.

The Society is unable to offer any advice on the suitability of any protection or investment products.

 Repayment Strategy – Stocks & Shares ISA 

With a Stock & Shares ISA (individual savings account) repayment strategy, interest only is paid to the Society.

ISA plans can be funded on a monthly basis.  The capital built up in the plan is used to repay the mortgage at the end of the mortgage term.  There is no element of life cover with this method and the borrower must make separate arrangements to cover the mortgage in the event of death or critical illness.  There is no guarantee that the plan will produce enough to repay the mortgage.

For Stocks and Shares ISA the Society will require a copy of the latest statement dated within the last 12 months.  The method of determining the level of investment required at the outset of the loan is :

Loan amount x 120%
Term of loan (in years)

The Society is unable to offer any advice on the suitability of any protection or investment products.

Repayment Strategy – Pension

A pension repayment strategy is based on a personal pension plan and is designed to provide the borrower with a pension and pay off the mortgage capital.  With this mortgage interest only is paid to the Society and a separate premium is paid to a pension provider for the pension plan.  The plan will usually include some form of life cover.  This type of mortgage requires specialist advice.

For a pension mortgage the Society will require a copy of the latest projection statement dated within the last 12 months along with written confirmation from the borrower(s) pension adviser or financial adviser. This written confirmation must provide  the estimated projected value of the pension at the end of the mortgage term, which should at least cover the interest only mortgage amount..

The Society is unable to offer any advice on the suitability of any protection or investment products.

Repayment Strategy – Sale of Second Home

The Society will allow sale of a second home as a repayment strategy provided there is sufficient equity to repay the interest only part of the mortgage.

The Society will require property details, confirmation of ownership and evidence of mortgage debt.  For loans less than 10 years equity at inception should be 100%.  For loans greater than 10 years equity at inception should be 75%.

Self build applications – sale of existing property and conversion to repayment

The Society will permit self build applications to be set up on an interest only basis until release of the final stage payment when the mortgage will be converted to a repayment basis.

Lending in Retirement

‘Lending in retirement’ occurs when the borrower(s) on a mortgage is retired at the inception of the mortgage contract.

If the majority of an individual(s) income is from pension income at the inception of the mortgage, then they are considered to be retired.

Lending should ideally be on a capital plus interest basis.  Interest only lending should only be considered where there is a credible and evidenced repayment strategy in place (see Interest Only Mortgages above).

Applications for lending in retirement may be allowed up to the age of 80 years where the mortgage is on a repayment basis, or 75 years on an interest only basis.

The maximum LTV for ‘lending in retirement’ is 70%.

Where there are multiple parties to a mortgage with a mix of incomes it is important to understand and assess the source of income.  Where the majority of income is derived from one party or parties ‘in retirement’ then the entire mortgage should be categorised as ‘in retirement’.

The types of evidence which can be used to verify Pension Income already being received are as follows:

• Latest payslip or Latest pension statement dated within last 12 months and
• Latest bank statement

This type of mortgage application should be submitted to your local Progressive branch using a paper application, and not online.

Lending into Retirement

‘Lending into retirement’ i.e. to borrower(s) who is currently in employment but may have or will have retired before the term is scheduled to end.

At the point of inception of the loan the age of the borrower(s) at the end of the scheduled loan term should be reviewed.  If the term takes the borrower(s) past the age of retirement i.e. the age the borrower(s) has told us they plan to retire or age 70, whichever is the lesser, the loan is considered to be ‘into retirement’.

Even if the applicant(s) have stated they intend to work past the age of 70, once they have passed their expected retirement age or age 70 the loan is considered ‘into retirement’ and pension income only must be considered.  The loan must be affordable on pension income only.

Lending should ideally be on a capital plus interest basis.  Interest only lending should only be considered where there is a credible and evidenced repayment strategy in place (see Interest Only Mortgages above).

The maximum LTV for ‘lending into retirement’ is 75%.

Where there are multiple parties to a mortgage with a mix of incomes it is important to understand and assess the source of income.  Where the majority of income is derived from one party or parties falling into the definition of ‘into retirement’ then the entire mortgage should be categorised as ‘into retirement’.

The types of evidence which can be used to verify anticipated retirement income are as follows:

• Private / Company Pension Forecast Statement dated within the last 18 months.
• State Pension Statement dated within last 18 months which must be obtained by the customer directly as an actual statement showing their name and address (this can be obtained from The Pension Service).
• State Pension Forecast statement issued to the customer directly from The Pension Service showing their name and address.
• Annuity Statement dated within the last 18 months.

This type of mortgage application should be submitted to your local Progressive branch using a paper application, and not online.

Remortgage

Free Standard Legal Fees (Society’s Solicitor acting) or a cash back:

Where the Society’s product range includes a remortgage product with either free standard legal fees (using the Society’s allocated Solicitor) or a cash back the following guidelines should be applied:

Free Standard Legal Fees (via Society’s Solicitor):

• Re-mortgage to replace existing borrowings only;
• Re-mortgage to replace existing borrowings plus additional borrowings.

Re-mortgage outside cash back for free legal fee cases:

• Re-mortgage plus transfer of equity;
• Re-mortgage plus change of name e.g. applicant has married since mortgage with current lender incepted and now wishes to change name;
• Applicant using their own legal representation.

Remortgage with cash back (Applicant(s) using own Solicitor):

Where the Society’s product range includes a remortgage product with a cash back (instead of free standard legal fees with Society’s Solicitor) the following guidelines should be applied:

• Once the mortgage completes and the customer is due their cash back, the Society will arrange to pay their cash back to the bank account which has been set up to collect their monthly mortgage payment.

Other cashbacks which are agreed as part of the mortgage product/interest rate deal will be paid to the applicant(s) in the same way.