Interest only lifetime mortgages are a special type of lifetime mortgage designed for a select group of homeowners who have a more cautious attitude to risk & any subsequent inheritance. There are certain parameters that must be followed with these interest only loans and while there have been strides to offer more flexibility with interest only equity releases, it is important to discover if this is the right loan for your retirement situation.
Assessing Interest Only Lifetime Equity Release
A standard equity release offers a roll-up plan where interest compounds onto the back of the principle amount. No repayment is made on interest or the capital sum given to the homeowner until death or a move to a place that offers long term care. Interest only lifetime mortgages are different. This product allows greater flexibility for a homeowner to be able to make interest repayments. In fact it is a must to repay the interest either in full or part depending on the type of interest only lifetime mortgage. Nevertheless, options do exist within Stonehaven’s & More2life’s interest only plans by having the option at any point to switch the lifetime mortgage to a roll-up scheme, thus ceasing any monthly repayments. For more flexible interest only packages see voluntary repayment schemes.
The assumption is you make monthly payments which are calculated based on the monthly interest rate and the amount borrowed. The interest payment is determined by the loan amount taken in a lump sum like standard mortgages. In fact the only difference is the repayment of interest. As long as the interest is paid in full every month the capital sum to be repaid remains unchanged.
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• The loan amount will always be repaid upon sale of property.
• You pay off the interest to keep the debt at the same level.
• Fixed interest rates mean monthly payments will never change
• The paid interest and loan to value maximum is less than the current market value of the property; therefore, there is a chance that you can leave an inheritance behind for beneficiaries.
• No repayment vehicle is required such as an ISA or endowment policy
• The property will remain 100% owned
The above are the advantages of interest only lifetime mortgages. Like any financial product disadvantages exist, which can help you determine if this is truly the product for you.
• You need to have enough income to repay the interest
• Your home may depreciate lessening the inheritance
• You still have to repay the loan at the end of the day
• Repayment usually requires the home to be sold
• Loss of a partner could affect affordability to meet the monthly payments
The disadvantages can, for some homeowners, be too much. There are certainly other lifetime mortgages to choose from, thus a comparison can be extremely helpful. Lifetime mortgage providers do offer inheritance protection which can lessen the number of disadvantages. Additionally, there is a possibility of rolling over the loan into a standard roll-up option later on should the interest become too much to pay off each month. This does eliminate a couple of disadvantages that might not work for some homeowners.
Overall, a decision should be based on whether the funds are essential to a comfortable retirement and how much you really need to ensure a retirement life that you deserve. For every person it is different. You may only need a few thousand pounds rather than the maximum loan to value percentage available to you, which can also keep the costs down.
Always seek independent lifetime mortgage advice to ensure one of the biggest financial decisions is made for the right reasons & with the right lifetime mortgage product.View Interest Only Lifetime Mortgage Products Here