Interest Only Lifetime Mortgage

The Ins & Outs Of Interest-Only Lifetime Loans Schemes in the UK

Contributors: Nicola Date, Katherine Read. Reviewed by Francis Hui

Looking for an Interest Only Lifetime Mortgage Scheme? We'll Help You Get Started With Everything You Need to Know About These Interest Only Loans.

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What’s an Interest Only Lifetime Mortgage?

A Complete Guide to Interest Only Lifetime Mortgages in Dec 2021

Yet another type of equity release that you need to be aware of!

However, sometimes it’s challenging trying to comprehend the ins and outs of all plans, given the variance in features and advantages.

Luckily we’re here to assist you.

We’ll help you discover:

  • What’s an interest only lifetime mortgage.
  • How they work in Dec 2021.
  • Important features of these plans.

With more than a hundred hours of research, 8 expert consultations, and consumer considerations, we’re in the perfect position to guide you.

Now, let’s unpack the in’s and out’s of an interest only lifetime mortgage!

What’s an Interest-Only Lifetime Mortgage?

The Interest-only lifetime mortgage is a relatively new type of equity release that allows you to unlock cash and then repay the monthly interest, meaning equity release without compound interest.

How Does an Interest-Only Lifetime Mortgage Work

How Does an Interest-Only Lifetime Mortgage Work?

An interest-only lifetime mortgage works by the homeowner unlocking equity, like they would with a traditional lifetime mortgage. One then repays the interest monthly, instead of allowing it to compound. The loan amount is then repaid from the sale of the home when the last homeowner dies or enters long-term care.

Learn more: What’s a Lifetime Mortgage & How Does It Work?

Important Features of Interest-Only Lifetime Mortgage Plans

5 Important Features of Interest-Only Lifetime Mortgage Plans

There are 5 important features of an interest-only lifetime mortgage. These factors include:

  • You only have to clear off the interest – so the amount you owe is the initial amount borrowed, and it doesn’t go up or down.
  • It doesn’t have an upper age limit – but you need to be over 55.
  • You can get a fixed interest rate option – unlike other schemes that have either a fixed4 or variable rate, the interest-only plan helps you build your retirement finances with the fixed rate option.
  • It doesn’t involve an end date – your loan is repaid when you pass away or move into long-term care.
  • You opt to stop paying the loan any time – you will still reside in your home, but
  • the on-going interest will be added to your debt from that point, thus
  • effectively becoming a roll-up lifetime mortgage.

Check out the best lifetime mortgage rates you can get for a lifetime mortgage!

The Benefits of Interest-Only Lifetime Mortgages

What are the Benefits of a Interest-Only Lifetime Mortgage?

The main benefit of an interest-only lifetime mortgage is that you don’t have to worry about interest compounding.

Here’s more information:

  • It offers you a fixed interest rate and monthly payment plan, with no affordability
    or income checks needed
  • When you continually repay the interest off your interest-only plan, it will assist you in maintaining a level mortgage balance. You will only reimburse the primary amount you borrowed once the life of the policy ends
  • You get to retain 100 per cent of your property, along with an escalation in its future value
  • The schemes run for your lifetime, and your loan is repaid upon death or moving into long term care
  • If you are move house, you can move the interest-only plan across, subject to the home meeting your plan provider’s conditions
  • The plan also offers you a flexible option which allows you to shift from interest-only to roll-up – so you cease making monthly payments
The Pitfalls of Interest-Only Lifetime Mortgage Schemes

What are the Disadvantages of an Interest-Only Lifetime Mortgage Scheme?

The main disadvantage of an interest-only lifetime mortgage scheme is that you need to have the income to afford interest repayments.

Other disadvantages include:

  • It affects inheritance – While you will be repaying the interest, unlocking equity will impact the amount of money that you leave to your heirs.
  • It can affect your means-tested benefits – before taking out the plan, be sure to consult your trusted financial adviser.

Must read: Is Equity Release Worth the Risk?

How Much Does One Have to Repay Monthly With an Interest-Only Lifetime Mortgage Plan

Must I Undergo an Income or Affordability Check to Qualify for an Interest-Only Lifetime Mortgage?

No, you don’t need to go through income or affordability inspection with an interest-only lifetime mortgage. The FCA turned this rule around as a result of market changes and significant alterations in the set laws.

Interesting read: What’s a Retirement Interest-Only Mortgage?

How Much Must I Repay Monthly With an Interest-Only Lifetime Mortgage Plan?

Your monthly repayments with an interest-only lifetime mortgage are determined by you (within fixed limits) –as long as you meet the terms and conditions of the equity release with repayment option. The contributions you make are dependent on elements like your income, the amount of inheritance you want to hand over, and the amount you borrowed.

Get a better idea and check out our free online lifetime mortgage calculator!

Interest-Only Lifetime Mortgage Providers

If you’re looking for an equity release with interest payments, look no further. Here’s a list of the best interest-only lifetime mortgage providers and why we love them.

Canada Life

Great for: Flexibility

Canada Life’s equity release products are designed with a build-it-yourself approach. Any qualifying homeowner can customise their package by adding extra’s such as cashback, a drawdown option, or find a plan that’s interest-only, thanks to Canada Life’s variety of lifetime mortgage plans.

One Family

Great for: Fixed or variable rates options

One Family offers plans that are intended for those who want the lowest fixed rates available and the security of knowing what their rate will be for the life of their plan. They also want to make interest-only payments so that they can keep a constant mortgage balance, giving them more equity in their home or beneficiaries.

In Conclusion

Unlocking equity from your family home can be nerve-wracking. Make sure that you carefully understand what the plan entails and you will ensure you have an effortless time in your retirement and always get a second opinion from an expert!

If you, however, don’t feel like this is the perfect one for you, then you must you check out the guide on ‘Types of Equity Release Schemes’ available in Dec 2021, and thoroughly evaluate the plans that suit your needs best.

Editorial Note: This content has been independently collected by the SovereignBoss advisor team and is offered on a non-advised basis. Sovereignboss may earn a commission on sales made from partner links on this page, but that doesn’t affect our editors’ opinions or evaluations. Learn more about our editorial guidelines.

rachel w

Rachel Wait
Personal Finance Journalist

Rachel is an experienced finance journalist and editor with a particular interest in personal finance and consumer affairs. She has vast experience writing about money issues, property, insurance, and consumer affairs, and you’ll find her articles regularly featured in top media and newspaper publications.
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Written by
John Lawson
Founder SovereignBoss

John is passionate about education and has made it his life-long mission to assist UK citizens on their future financial options, with a specialist interest in equity release, and SovereignBoss is the natural extension of this passion.

Reviewed by
Francis Hui
Senior Risk Manager

Having held various high-level roles across the industry, Francis is truly an expert in aiding UK citizens in their financial decisions and risk analysis. His unique insight and statistical knowledge make him the perfect person to help you take your financial future to the next level.
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Katherine Read
Consumer Affairs Writer

Since joining the editorial team at SovereignBoss, Katherine has become focused on bringing transparency to finances and opportunities for those approaching retirement age. She writes on the topics of equity release, home reversion, and mortgages.

Nicola Date
Writer & Journalist

Nicola is a financial writer for SovereignBoss and is passionate about the opportunities that equity release can open up for homeowners. Her extensive business experience and deep understanding of the industry means that she’s always up-to-date with the latest developments.

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