If you’ve reached retirement age and you need access to funds to help with your expenses or help a loved one on to the property ladder, you’ve likely come across interest-only lifetime mortgages. This is one of the types of lifetime mortgage products available in the UK, and you should be aware of its benefits and risks before making a decision.
A lifetime mortgage is a type of equity release that allows you to borrow money against your property. Usually, those funds are paid to you in one lump sum or through a series of small payments that you can choose.
The issue is that these types of lifetime mortgages increase your total mortgage due to interest roll-up. So, unlike a lump sum or drawdown lifetime mortgage, where you pay back the loan plus the interest when you sell your property, you’ll make monthly payments to cover the interest on the lifetime mortgage. This means that you won’t have any extra costs to pay at the end of your plan, just the total amount you borrowed.
Note that to qualify for an interest-only lifetime mortgage, you’re still expected to meet the exact requirements of a standard lifetime mortgage policy. This includes:
If you have decent income coming in every month and you feel like you can cover the interest of your lifetime mortgage, you should consider this option to lower the final payment at the end of your plan. This will help you retain as much value of your property as possible, unlike other types of lifetime mortgages where the amount you’d leave as an inheritance would be much lower.
Here’s an overview of the benefits of lifetime mortgages and how they can help you in retirement:
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The amount you can release against your property will depend on the value of your home and your age. To get a proper estimate, you should contact a lender or mortgage advisor to discuss your options.
Here’s an estimate that gives you a better idea of the costs involved:
Note that your quote will likely be different since rates differ by company. Make sure to discuss your requirements with an advisor before making a decision.
There are some factors that you should take into account before deciding on an interest-only lifetime mortgage, including:
To avoid any unwelcome surprises, you should be thorough in your research, and you should employ professional help to guide you through the best plan for your circumstances
The short answer is yes. You are allowed to apply for any lifetime mortgage if you still have an existing mortgage. However, the lender will ask you to use part of the funds from your lifetime mortgage to pay off the remaining balance of your standard mortgage. As a result, if you still have a significant amount to pay, a lifetime mortgage might not be the most efficient way to access funds.
It would be best to go through a price comparison site or use a broker to help you land the best possible deal. These services will search the market for the best rates and save you money in the long run.
An interest-only lifetime mortgage is designed to be paid off when you pass away or go into care. As a result, it’s not optimal to try and pay off your mortgage early. Still, it’s understandable if your circumstances change and you need to exit your plan.
In this case, the lender will likely charge you an early repayment fee to recoup any potential losses relating to your contract. You should consider how much the fee will be and whether it’s in your interest to exit the contract.
An interest-only mortgage is a fantastic option if you have an income surplus and are confident you can make the monthly interest payments. It means that you retain more equity on your property at the end of your plan and a larger inheritance for your loved ones.
If you feel like you can’t manage the monthly payments in addition to your expenses, then you can opt for an interest roll-up plan where you don’t have to pay anything until the end of your plan.