There are two products on the mortgage market for retirees that are called interest only. One is an interest only lifetime mortgage that requires a monthly interest repayment and has no fixed term which enables it to run for the rest of the homeowner’s life. The second is one that requires disposable income with a verification process as well as a pension or annuity income tied to it. It is this second type that will be the focus of this particular section.
Under this type of retirement mortgage, repayment can be due by age 75, unlike interest only lifetime mortgages. The repayment is possible due to the annuity or pension account that you make payments into. Another option is when you become 75 you can convert to a lump sum lifetime mortgage thereby staving off full repayment, but fulfilling the interest only mortgage. Every company that offers interest only retirement mortgages has a different qualification, criteria, and repayment requirement so it is important to assess options to see where you fit in as a homeowner and to understand the specifics in more detail. An independent financial advisor can help to ensure you are comfortable with the product or find one that best fits you.
Advantages of Interest Only
The one reason many choose an interest only mortgage versus other retirement mortgage options is the repayment. They are repaying the interest that normally compounds with equity releases. The principle balance remains the same throughout the life of the loan until it is paid off in full. This makes it possible to leave behind an inheritance when the house is sold for the repayment.
It is necessary to have disposable income to repay the interest. One reason many need a mortgage in the first place is a lack of cash, so it can seem a little juxtaposed that you need disposable income for interest repayments while also taking out a loan. There are some flexible repayment options that can make disadvantages slightly better.
The disadvantage, if it really is an issue, comes down to why a lump sum of cash might be required. For some paying off of 25 year fixed mortgage with an interest only mortgage that can roll into a lump sum lifetime mortgage is a better option than continuing to pay on the 25 year fixed mortgage. Often it has to do with the advantage of better interest rates. It can also be a savings on inheritance taxes or capital gains for the beneficiary to receive a gift in small increments while homeowners are still around.
Basically, small gifts can help family when they need it most instead of waiting for an inheritance. Plus homeowners can see the funds in use and their family happy. This can outweigh the need to repay interest particularly if the funds are for family rather than being used by the homeowner for their monthly expenses. It all depends on what you require as to what you see as advantageous or not. The ultimate goal is to ensure cash is there when it is needed in a way that is most affordable to you.View Interest Only Mortgage Products Here