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?
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?
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.
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
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?
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.
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.
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.
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.
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.