The Mortgage Clinic: 'Our payments are eating into our pensions'

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'We retired five years ago and decided to unlock some of the value of our house. After taking out a lifetime mortgage, we got a lump sum and now pay interest monthly. The loan will be repaid when we no longer need the house, or when we have both died, but it's a tracker mortgage, and recent rate rises mean we now pay £150 more each month. How can we reduce these payments?'

EG, by e-mail

With most lifetime mortgages, the costs of the loan are met when the property is sold. Either the interest either racks up until the end of the loan, or a share of the house is granted to the lender at the beginning and claimed by the lender when the house is no longer needed.

Your scheme is different – you're paying the interest in monthly bills, and that gives you two advantages. For one thing, you retain ownership of your home. For another, the interest bills will be less paid monthly than if you let them roll up over time.

However, your deal does leave you exposed to rising interest rates. Fortunately, there are some simple steps you can take to avoid this.

Your simplest option is to ask your existing lender whether they have an alternative deal that better suits your needs, such as a fixed- or capped-rate mortgage.

If they do not, then look further afield. According to David Hollingworth, a director with the mortgage brokers London & Country, there are several banks and building societies that would have something to offer you.

"If you have a big enough income from your pensions, you might be able to find a lender that offers a fairly standard fixed-rate or capped mortgage over a long term. Nationwide and Abbey both offer such arrangements," he says.

If that doesn't work out, then you could look at swapping to an equity-release mortgage, where the interest rolls up. This will free you from monthly repayments, but will eat into your capital, so you will have less to pass on as an inheritance.

The deal you will be able to arrange will depend on your ages and the value of your home.

As Hollingworth points out, lifetime mortgages which let the interest roll up over the years also have much lower borrowing limits than standard mortgages. You can generally only borrow 30 to 40 per cent of the value of your home.

Alternatively, you could look to pay back some of the money you originally borrowed. If you used the funds to buy a second property, for example, now might be the time to sell it; if you used it to improve your home, you could consider trading down to a smaller property. These are not easy decisions to make but you might feel more comfortable in your retirement with fewer assets, but also less debt.

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