An interest only lifetime mortgage provides a different option to homeowners than standard lump sum lifetime mortgages. The variation on a lump sum lifetime mortgage is what makes this product attractive to certain homeowners and unworkable for others. To determine if this product is correct for you and your needs, it is important to understand how it works, as well as the pros and cons.
How Interest Only Lifetime Mortgage Schemes Works
A lifetime mortgage was created to provide funds to the homeowner without the need for repayment on a monthly basis. Instead, repayment is due at the time of death or a permanent relocation to a long term care facility. The interest only lifetime mortgage changes a small part of how the lump sum option works.
The capital sum or lump sum of tax free cash is not due until death or care facility requirements. However, the interest is owed on a monthly basis. Providers realised some homeowners could make payments on a monthly term and would like to do so in order to keep the end balance the same. It can cause less worry over the inheritance left for beneficiaries since the capital remains the same. To fulfil the needs of homeowners’ providers started offering these options.
While the interest only product has undergone changes since its first release, the main principle of the lifetime mortgage remains the same.
When determining if this product is right for you, it is important to assess the qualification criteria. The property value and age of the youngest homeowner are still used to determine if the homeowner is eligible for the loan. The minimum age requirement starts at 55 for lifetime mortgages. Some providers may elect to offer this product to those who are 60 or 65. Others will have a cap on the age such as a maximum age of 75 or 85 for this type of loan to be accessed by the homeowner.
Some providers will allow a rollover from interest only to standard roll up lifetime mortgage after age 85 when income may be more difficult to access; therefore, an inability to make the interest only repayment.
• Providers have different criteria to fit homeowner needs
• Interest is paid so the principle balance remains the same
• Loans fit the SHIP and Equity Release Council Code of Conduct Requirements
• Potential inheritance can be left for beneficiaries
• Homeowners may be unable to repay interest throughout the entire life of the loan
• Some providers require income verification
The disadvantages of this lifetime mortgage option are only a problem if the loan is not right for you and your retirement needs. It is a specialty mortgage where repayment is required at least of the interest accruing each month. For some it is easier to start off with an interest only lifetime mortgage and change into a roll-up lump sum mortgage later in their life. You have to determine if the pros and cons are acceptable, as well as whether you have enough income to support repayment. Once you know you can speak with a representative.
Require further information?
Use the form below to request further information about this, or any other scheme, and an FCA regulated independent equity release adviser will be able to assist you over the phone, face-to-face, or via email.