Interest Only Lifetime Mortgage

A Complete Guide To Interest-Only Lifetime Mortgages
Contributors: Nicola Date, Katherine Read. Edited by Rachel Wait & Reviewed by Francis Hui
Are You Thinking of Applying for an Interest-Only Lifetime Mortgage? Find Out What It Is, 5 Important Features You Must Know & Is It the Right Type of Lifetime Mortgage FOR YOU…

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Have you heard of interest only lifetime mortgages? 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.

What You’ll Learn in This Article:

    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 ins and outs!

    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 interest1.

    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 fixed or variable rate, the interest-only plan helps you build your finances with the fixed-rate option. View the most current rates here.
    • It doesn’t involve an end date–your loan is repaid when you pass away or move into long-term care2.
    • 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% 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.

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    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 benefits3before 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.

    Common Questions

    Are Interest Only Mortgages Still Available?

    Can You Get An Interest-Only Mortgage At 65?

    Can You Pay the Interest On A Lifetime Mortgage?

    What's the Difference Between Equity Release and A Lifetime Mortgage?

    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 the interest only lifetime mortgage is the perfect one for you, check out the guide on ‘Types of Equity Release Schemes’ available in 2022, and thoroughly evaluate the plans that suit your needs best.

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