Life Loans are back

I spoke to the company

Details of the product are now available at

Repayment Events on Lifetime Loan - Spry Finance

Repayment Events The clue is in the name: A Lifetime Loan is designed to last for as long as you remain living in your home or as long as you live. The loan does not become repayable until one of the following ‘repayment events’ arises: Sell the home The loan is made against your specific […]
www.spryfinance.ie

It's the one company Spryfinance and Seniors Money but the brand name Spry will be advising the borrowers.

Early Repayment and Early Repayment Charges

Borrowers can repay 10% of the original amount borrowed every year without penalty.
Borrowers can repay the full amount without penalty any time after 10 years

They are subject to the same rules on early repayment fees as other lenders, so if interest rates generally rise, there won't be any break fees.

If you are aged 78 or over when you take out the loan, no ERC will apply after your 88th birthday.

Other issues

You can't borrow a monthly amount e.g. €2,000 a month to supplement your income.
Likewise, you can't get approval now for €200k but draw down only €100k. Of course, if you want to borrow more after 5 years, you can apply again.
 

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How the Early Repayment Charge is calculated. This is a simplified version.

Let's say that you want to repay your loan after 5 years.

During those 5 years, interest rates have risen by 1% - no Early Repayment Charge is payable.

But let's say that during those 5 years, interest rates have fallen by 1%.



If you don't repay it, the interest charged over the next 4 years will be €40k, so a €6k charge would be good value.

Brendan
 
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5.5% is a pretty high rate for secured lending though.

These loans are expensive to underwrite and/or they anticipate a higher default rate than a regular mortgage book.
 
Yes, it is a high rate.

BoI charges 3.3% for a ten year loan. I think that is the longest.

Life Loans are a bit unusual in that the rate is fixed for an uncertain period. It could be 5 years or it could be 45 years. Hard to fund that I would imagine.

It's probably fairer to compare the product with a buy to let mortgage. What are the buy to let rates at the moment?

The calculator relates to the old product so the new one might be different. But the maximum loan for a 70 year old was 25% of the house value.

The calculator does not allow for a fall in prices

Even still, it's hard to see much risk.

Let's say, I have a house worth €400k and I borrow €100k aged 70.

After 20 years, so when I am 90, I will owe €300k.

If the house falls in value by 50% over the next twenty years so they get back "only" €200k , the lender will still earn 3% on their money.

Brendan
 
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Is there an option to repay the interest annually as opposed to letting it compound?
 
Great to see these back. As long as the borrowers fully understand the product.

The opposition to this product usually comes from kids who are outraged that Mammy & Daddy had the temerity to spend their inheritance instead of living the last few years of their lives in poverty.
 
The rates are kind of comparable with most ‘interest only’ options though.

It’s secured lending, yes, but it’s on the ‘never never’.
 

A lot of the outrage in fact came from elderly parents who want to live something to the 50-60 year old children. Many feel obligated that they have to leave something to their children. In many cases, the only asset that a person has is their home and they don't like the thoughts of a lender getting it.

But it is a great product for those who's only asset is an illiquid one and who needs some cash.


Steven
http://www.bluewaterfp.ie (www.bluewaterfp.ie)
 
Can these loans be repaid prior to death? I’m thinking of a specific case I’m aware of where a good pal of mine’s parents are quite elderly and their home needs renovating. He’ll have the money in a few years but the work needs to be done now.
 

Why would they be outraged??
The product isn't compulsory.
 

Hi Gordon

Yes.

He can repay 10% a year without penalty.
After 10 years, he can repay the full amount without penalty.

And , if he wants to repay it before the 10 years, the penalty will probably be small.

Brendan
 
Anyone taking out one of these loans now while interest rates generally are so low, is unlikely to face an Early Repayment Charge. Or if they do, it will be quite small.

So the 5.5% wouldn't worry me too much. If another lender comes into the market and does them at 4% or if the family can come up with the money, then the loan can be repaid.

Brendan
 
Hmmm, interest rate is a bit steep for secured borrowing with a low LTV. Still, a very good product for the asset rich, cash poor.

Now if it could be combined with an annuity type product to give a regular income....
 
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