Interest Only Lifetime mortgages
Are you concerned that if you release equity you will lose all the value in your home if you live a long time? Well, this need not be the case with the growing availability of interest only equity release schemes, these schemes allow you to pay the interest each month and if you do, the debt will never increase, unlike traditional roll-up equity release schemes.
With an interest-paying mortgage, you get a lump sum and make either monthly or ad-hoc payments. This reduces, or stops, the impact of interest roll-up. Some plans also allow you to pay off capital if you so wish. The amount you borrowed is repaid when your home is sold at the end of your mortgage term.
Interest only lifetime mortgages are similar to any ordinary mortgage you may have had in the past except for four very important features
- You do not make any capital repayment each month – just the interest
- They have no end date and can be carried on for the rest of your life
- The interest is normally offered on a fixed interest rate for life rate giving you long term stability
- Reassuringly, should your circumstances change and the repayments do become too much, you can simply stop paying at any time without fear of losing your home. Any future interest would simply be capitalised on the debt in such circumstances
So providing you continue making the repayments, an interest only lifetime mortgage will help preserve much more equity in your home than any other form of equity release, whilst still enabling you to release some money from your home now. Not surprisingly they are becoming an increasingly popular way of releasing equity.
Advantages of Interest only lifetime mortgages
- Under an interest only lifetime mortgage providing you pay all payments the debt remains the same
- Interest only lifetime mortgages preserve more equity in your property for either your own use later in life or to leave to children
- Unlike ordinary mortgages, you could benefit from a fixed interest rate for life, giving you security of budgeting as the amount due will not change for the rest of your life/lives.
- As this is a specialist equity release scheme, SHIP approved, you have security of tenure for the rest of your life/lives, as even if payments do become uncomfortable at any time in the future, this scheme allows you to switch some, or even all, of the interest due over to a roll-up lifetime mortgage scheme, without needing to change lenders
Disadvantages of Interest only lifetime mortgages
- You are agreeing to make monthly repayments for the lifetime of the mortgage – thus increasing your expenditure compared to having no monthly repayments under a roll up lifetime mortgage
- Lending or personal circumstances may change resulting in you finding it difficult, if not impossible, to meet ongoing monthly repayments, when either you or the mortgage lender has the right to switch your plan over to roll up basis meaning you may still see the equity in your property reduce overtime
- Should you decide to switch some or all of your interest over to a roll up basis (or because you fail to meet monthly repayments – the lender automatically switches your plan over to a roll up basis), you will incur a slightly higher interest rate and an administration fee for switching it over
This is a lifetime mortgage. To understand the features and risks, ask for a personalised illustration.
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If you are considering equity release we recommend that you read is it right for you? carefully.