Interest Only Lifetime Mortgage

More people are considering an interest only lifetime mortgage where they are averse to the roll-up nature of equity release schemes, and subsequent reduction in the value of their estate.

 

Enjoying a good retirement income and wishing to protect the equity in their property, people can opt to pay off the interest charged by the lifetime mortgage company. By making such monthly payments will effectively keep the mortgage balance level throughout the plan term.

 

Summary

The borrower applies for a tax free cash lump sum from the equity tied up in their property
The amount borrowed is calculated using the age of the youngest applicant and property valuation.
The applicants will make monthly payments to the lender to repay some, or all of the interest.
Depending on the monthly interest payments, will determine the future balance.
If the whole amount of interest is repaid, the balance will remain the same throughout the term
Interest Only Lifetime Mortgages will run for the rest of one's life.



Advantages

Interest rates are usually fixed for life, meaning monthly payments will never changeNo proof of income needed; interest only lifetime mortgages can be classed 'self-cert' mortgagesIf the full amount of interest is repaid, the balance will remain level throughout the mortgage termSome interest only lifetime mortgages have the option to convert to a roll-up plan at a later dateYou retain 100% property ownership under an interest only lifetime mortgage planThe property only needs to be sold when mortgagor has died, moved into care, or on earlier saleNo repayment vehicle is required e.g. ISA or endowment, as sale of property will sufficeNo additional repayment vehicle is required, other than the eventual sale of the propertyInheritance protection is provided as the beneficiaries will know the exact amount be repaid to the equity release company, once the house is sold

 

Disadvantages
The mortgage isn't repaid until the mortgagor has died, moved into long term care or sold upIf the interest only lifetime mortgage is repaid early, then hefty penalties could be appliedTo maintain a level balance the monthly interest only payments must be kept up for lifeA reduction in future income could affect affordability and may result in repayment difficultiesThe loss of your partner could mean meeting the monthly payments from your income aloneIf interest rates fall, then you will be stuck on a higher interest rate and paying a premiumLoan-to-value can be restrictive, starting at 11% at age 55, rising to a maximum release of 44%

 

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