Interest Only Lifetime Mortgage

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

Contributors: Nicola Date, Katherine Read. Edited by Rachel Wait & 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 2022

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

It can be challenging trying to comprehend the ins and outs of the different equity release plans, but luckily we’re here to assist you.

We’ll help you discover:

  • What an interest-only lifetime mortgage is.
  • How they work in May 2022.
  • The most important features.

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!

What Is an Interest-Only Lifetime Mortgage?

An interest-only lifetime mortgage is a relatively new type of equity release scheme that allows you to unlock cash and then repay the monthly interest.

This means it’s an equity release without compound interest.

How Does an Interest-Only Lifetime Mortgage Work?

An interest-only lifetime mortgage works by letting the homeowner unlock equity in their property value, as they would with a traditional lifetime mortgage.

However, the homeowner then repays the interest monthly, instead of allowing it to compound.

The loan amount is repaid from the sale of the home when the last homeowner dies or enters long-term care.

5 Important Features of Interest-Only Lifetime Mortgage Plans

  • You only have to pay off the interest – so the amount you owe is the initial amount borrowed, and it doesn’t go up or down.
  • There is no 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 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 can opt to stop paying the loan any time – you will still reside in your home, but the ongoing interest will be added to your debt from that point, thus effectively becoming a roll-up lifetime mortgage.

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

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

Further benefits include:

  • Fixed interest rate and monthly payment plan, with no affordability or income checks required.
  • When you continually repay the interest, you will only owe the original amount borrowed on your equity release at the end of your plan
  • You get to retain 100 per cent of your property, along with an escalation in its future value.
  • These equity release schemes run for your lifetime, and your loan is repaid upon death or moving into long term care.
  • If you move house with an equity release plan, you can move the interest-only plan across, subject to the home meeting your plan provider’s conditions.
  • Thes lifetime mortgages also offers you a flexible option which allows you to shift from interest-only to roll-up equity release – so you cease making monthly payments.

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

The main disadvantage is that you need to have the income to afford interest repayments.

Other disadvantages of this type of equity release 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 that specialises in equity release.

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

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

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

Your monthly repayments are determined by you (within fixed limits).

The contributions you make on these lifetime mortgages depend on factors 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 equity release lifetime mortgages with interest payments, look no further. Here’s a list of the best interest-only lifetime mortgages by top providers and why we love them.

Canada Life Equity Release

Great for: Flexible equity release

Canada Life’s equity release products are designed with a build-it-yourself approach, allowing you to unlock the perfect lifetime mortgage to suit your needs.

Any qualifying homeowner can customise their equity release package by adding extras 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 Equity Release

Great for: Fixed or variable rates options

One Family is a financial services provider that offers equity release 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.

stop making retirement harder.

In Conclusion

Unlocking equity from your family home can be nerve-wracking.

Make sure you carefully understand what the plan entails to ensure you will have an effortless time in your golden years and always get a second opinion from an expert!

If, however, you don’t feel like this is the perfect one for you, check out the guide on ‘Types of Equity Release Schemes’ available in May 2022, 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.
John Lawson

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.
francis

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.
kath icon

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

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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