We have recently discussed the merits of the new 10% repayment option which are part of Aviva’s new range of flexible mortgage options that have been incorporated into the Aviva Lifestyle Flexi Plan & Lump Sum Max - Now Aviva Accept Voluntary Repayments – Does this Change the Future of Equity Release?.
These new flexible repayment features provide customers with the ability to manage the future balance of their equity release schemes. However, further additions have been made which are a credit to the forward thinking of Aviva’s hierarchy.
The two further equity release options now included into both plans are the enhanced lifetime mortgage option and an early repayment exemption charge.
Let’s look at each option individually and understand why & how each new feature could potentially benefit future Aviva equity release plan holders.
Enhanced Lifetime Mortgage Option
Previously, only the Aviva Lump Sum Max plan had the enhanced (also known as impaired lifetime mortgage) equity release facility. This means that anyone who has a history, or has medical records indicating they meet a list of qualifying illnesses could benefit from uplift in the maximum equity release lump sum they could receive.
However, Aviva has now put a reverse spin on how this equity release enhancement can work. Rather than the enhancement working to increase the maximum lump sum, they have reversed this by applying a twist on how the enhancement can operate. Therefore, on the revised Aviva Lifestyle Flexi plan now, should illness permit qualification for enhanced terms, then the interest rate will be REDUCED. Consequently, retirees looking for a release of equity & qualify for enhanced terms will receive a lower interest rate than the normal equity release rate.
No enhanced mortgage company has considered this approach previously, so why does Aviva now & how does this work?
Qualification rules for the enhanced lifestyle flexi plan
Firstly, Aviva will request a Health & Lifestyle Questionnaire be completed which will ask questions to ascertain eligibility for enhanced terms. Such health questions include:
- Height & weight including Body Mass Index
- Do you smoke more than 10 cigarettes a day?
- Have high blood pressure?
- Suffer from diabetes & take medication?
- Had angina or suffered a stroke?
- Had cancer in the last 5 years requiring chemotherapy
- Suffer from Parkinsons disease or dementia
- Kidney, heart, lung, liver problems
- Retirement from work early due to medical reasons
Should any of these, or combination of these establish qualification for enhanced rates then a Key Facts Illustration can be generated by your equity release adviser. If terms are then acceptable & an application follows, then as part of the enhanced lifetime mortgage application process Aviva will clarify with your doctor whether your stated health issues are on your medical records. No medical examination will be required.
Whereas previously the minimum rate for the Aviva Lifestyle Flexi was 5.68%, if enhanced terms are available due to ill-health, then the rate can be reduced by a further 0.05% to just 5.63% (rate @1.6.14). Not a significant reduction it may seem, however considering roll-up of the interest and the compounding nature of the future balance this could save your beneficiaries a considerable sum of money in their future inheritance.
Therefore, in summary a lower equity release interest rate can be achieved by qualifying for enhanced terms due to poor health on the Aviva Lifestyle Flexi plan which also comes with the drawdown option. Possibly the best equity release plan in the current marketplace due to the extra low interest rate, cashback of £1000, free valuation, drawdown facility & the strength of the Aviva brand.
*A point to note here is that not all companies offer the same enhanced rates. Check you can at least obtain rates that are independent & NOT from Aviva direct as they will not be lower than companies such as Equity Release Supermarkets.
Early repayment charge exemption
Since I originally advised on Aviva’s equity release plans almost 15 years ago, there has always been a stigma attached to their calculation of early repayment charges which can be upto a maximum of 25% of the original amount borrowed. The link with government gilt rates can be also confusing to many customers when calculating how they work in practice. Nevertheless a qualified equity release adviser should be able to assist with such calculations.
News stories have also highlighted cause for concern with potential early repayment charges. These charges have always been shown on their Key Facts documents, however occasionally situations can arise whereby even the flexible nature of these schemes cannot compensate for some unfortunate scenarios.
One notable example of this was the news story where someone needed to move into long term care with their partner following in order to provide their care in the home. This left them with an empty home and little option other than needing to sell up as they cannot rent out or leave the property unattended. With this being forced on them, they could incur a hefty penalty for repaying the equity release loan early based on the ruling that the partner did not need to move into care aswell.
Welcome changes to Aviva’s early repayment charges
Following examples of unfortunate events as previous which hit the tabloids, Aviva have since changed their plans to account for such scenarios and this is welcomed.
On plans now, the rules have changed should clients with a joint Aviva lifetime mortgage need to repay the loan due to death or moving into a long-term care facility. If such an event occurs Aviva will now allow repayment of the lifetime mortgage free of any early repayment charge. However, the condition is that this is actioned within THREE years of one of the client’s death or the date Aviva is advised that one of the mortgagors requires long-term care.
Therefore, in the above scenario their plight would have be accounted for and NO early repayment charge would be applicable. This will apply to many other people where at such a stressful time, the last thing they wish for is for another penalty to be applied in their lives. A simple concept which can have such alleviating consequences and has therefore to be commended.
If you have any questions regards the points raised in this article please ring Freephone 0800 678 5159 or email me at [email protected].