Interest Only Lifetime Mortgages
The interest only lifetime mortgage offers the same benefits as a traditional lifetime mortgage, but also builds in a simultaneous protection for inheritance. This specific type of lifetime mortgage works as a successful alternative to roll-up lifetime and equity release schemes. In order to take advantage of an interest only lifetime mortgage, you should ensure that you have adequate retirement income to make monthly payments. This has now been ensured with the advent of MMR (Mortgage Market Review) which was implemented on 26th April 2014.
An interest only lifetime mortgage plan works quite differently from the traditional roll-up lifetime mortgage. Firstly, with interest only lifetime mortgages you are expected to make monthly payments equivalent to the amount of interest you are accruing on the amount borrowed in your loan. However, some lenders do allow any payment amount between £50pm & the full interest amount being charged. This means that you need to be prepared and able to make those payments for the rest of your life, although Stonehaven & more2life do allow a switch over to a roll-up at any time in the future.
However, because you are required to make those monthly payments, the amount of your loan never changes. The amount you originally borrowed will be the same amount due to your lender upon the sale of your property. So, if you are able to make the monthly interest payments, your estate will not owe any compound interest once your home is sold. This could help make a better possibility of leaving behind an inheritance to your loved ones. So, for many an interest only mortgage is a way to still reap the benefits of a lifetime mortgage, while also ensuring that some kind of inheritance is still available to beneficiaries.
Similar to every financial product, interest only lifetime mortgages come with both advantages and disadvantages. For some, interest only lifetime mortgage schemes provide just the right amount of flexibility and benefit. However, like any other product, interest only mortgages might not be the right fit for every situation. That is why it is important to seek independent financial advice to ensure that a lifetime mortgage scheme is right for you and your particular and individualized needs.
Advantages of interest only lifetime mortgages
1. Repayment of the loan is not due until the house has been sold. This means that you are able to remain in the home until you either pass away or enter into permanent long term care.
2. You are able to maintain a consistent and level mortgage balance on your property because you are paying off any accrued interest through monthly payments.
3. You are able to retain the entire property and its value throughout the course of the loan.
4. You can often repay an interest only lifetime mortgage at any time over the course of the loan period, however be aware that early repayment charges may apply dependent upon the mortgage lender.
5. Some plan such as the Retirement Advantage Interest Select range & the more2life Interest Choice both have fixed lifetime interest rates meaning monthly payments will remain the same for life.
Disadvantages of interest only lifetime mortgages
1. You need to make regular monthly payments. If you miss payments, your home could be at risk of repossession or the plan will be switched to a roll-up lifetime mortgage & continue.
2. If you decide to repay your loan early, you may incur early repayment charges or fees.
3. You may stand to lessen the inheritance you are able to leave behind to your beneficiaries if you do not pay the full interest amount charged.
4. Your interest rate will determine if your payments increase. If you have a variable interest rate, your monthly payments and the amount of interest you accrue could change. If the interest rate changes and your payments increase, you could find that they become unaffordable.