New data from Canada Life reveals that its interest-serviced lifetime mortgage product, Advantage, is attracting a distinct borrower profile compared to its traditional roll-up lifetime mortgage products.
Launched in February this year, Advantage offers customers a discounted interest rate when they commit to making regular monthly interest payments. Customers can choose to pay 25%, 50%, 75% or 100% of their monthly interest, with the discount increasing in line with the proportion serviced.
Analysis of Canada Life Home Finance customer data from the first six months following launch shows that Advantage customers are typically younger than those opting for a lifetime mortgage without an interest-servicing option, such as Canada Life’s Capital Select range. The average age of an Advantage customer is 66, compared to 69 for its Capital Select customers.
The data also indicates a strong commitment to servicing interest. More than eight in ten Advantage customers (86%) have chosen to service 100% of their monthly interest, securing the highest available rate discount. In contrast, just 1% selected the lowest interest-servicing option of 25%.
With an average loan-to-value of 24%, Advantage customers are retaining a significant proportion of equity in their homes. They are also more likely to apply jointly, with joint applications accounting for 51% of Advantage borrowing compared to 39% of Capital Select customers.
The reasons for taking out an Advantage lifetime mortgage also suggest that customers are using the product more as a structured financial planning tool rather than for discretionary spending.
Nearly half of Advantage customers (48%) used the funds to repay an existing mortgage, compared with 28% of Capital Select customers. Debt consolidation was the second most common reason, cited by nearly a third (31%) of Advantage customers, compared with under a quarter (23%) of Capital Select customers.
By comparison, just 9% of Advantage customers used the loan for day-to-day living costs, versus 27% of Capital Select customers. Holidays were also less commonly cited, at 9% for Advantage customers compared with 23% for Capital Select customers.
Alice Watson, Head of Home Finance, Canada Life said:
“We can see from the first six months of Advantage data that interest-serviced lifetime mortgage products are attracting younger, low loan-to-value borrowers with strong payment discipline.
“For some, the certainty of regular interest payments and a lower rate will be the right choice. For others, the flexibility offered by a traditional roll-up lifetime mortgage with ad-hoc repayment options will remain a better fit.
“As customer needs evolve, continued product innovation is critical for the lifetime mortgage market to develop and support a wider range of retirees. Providing advisers and their clients with a broader range of solutions means greater choice for homeowners looking to use their property wealth to sustain their retirement income and achieve greater financial flexibility in later life.”
