Ian Hudson, principal of Hudson Green and Associates, tells how two retired clients of his are at their wits end with debts of £123k and no expendable income...
"A couple in their mid 60s without any spare money at all came to me last week for advice. The pair have worked all their lives and are now claiming pensions.
They have no expendable income because they have car and household loans as well as a mortgage on the family home - this amounts to a debt of £123k in total.
They do have several endowments but these are worth just £76k.
How one adviser dealt with a tricky client case
The wife works as a cleaner for a few hours a week, bringing several hundred pounds into the household. The pair are living on this money as their pensions - which bring in approximately £2,000 a month - are used to pay bills and service their debts.
They had been seriously considering selling their family home and downsizing, thereby paying off the mortgage debts to free up a significant percentage of their income.
For most of his working life the husband had an itinerant job; and their current home, which they have lived in for the last 12 years, is their first family home.
The couple's three grown up children are pleading with them not to downsize.
We have found a way out of their predicament - in the form of a 'lifetime' mortgage. Typically Aviva and LV offer this type of loan.
Taking this mortgage would allow them to spend the money they have now, and when they eventually sell their house either before or on event of their death, the relieved income loan would be paid off.
The lending criteria is based on home value and age, and as the name suggests it is for life! The lending company will have the first changeover on the mortgage.
The interest rate is higher than on a traditional mortgage, at about 6.7% This is because the bank may not get its money back for 25 years.
The key question for the couple is whether they should enjoy their wealth while they are alive or provide the children with the fruits of their labour - even though they would never see the benefits of this.
The couple are thinking about it. It is a difficult decision.
With this mortgage the couple could live comfortably instead of scraping an existence, or selling a home that is dear to them."
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