Interest Only Lifetime Mortgage is a type of equity release that is a loan. There are two options for equity release: home reversion and lifetime mortgage. Some homeowners are more comfortable with a mortgage being in place than in selling a part of their home as home reversion would require. It is up to you to determine what is most comfortable for you and your retirement years—selling a part of your home or taking out a loan. Comparing equity release providers and different options will help you make a decision that is right for you.
The Interest Only Option
A standard lifetime mortgage provides a one-time lump sum payment to the homeowner. Typically interest compounds onto the loan until repayment. Repayment is not due until the homeowner needs a permanent move to long term care or dies. Until this time the homeowner lives in the home without worry of losing their home. In this way it is not a traditional mortgage because there is no payment each month.
Interest only is slightly different than standard lifetime mortgages. There is a one-time lump sum payment; however, there is also a repayment to be made each month. Like the name sounds you will make an interest only payment. As the interest accrues you pay it off. This keeps the one-time lump sum the same throughout the life of the loan.
• The principle amount always remains the same, allowing you to know exactly what will be owed at the end of the mortgage.
• Repayment of the principle sum is still at the end of the loan term.
• You remain in your home as long as you wish or until you need permanent care.
• You do need to make an interest repayment.
• You will need sufficient income to make the interest payments each month.
Interest only lifetime mortgages are available to homeowners who are 55 years of age from certain providers. Not all providers will have the same criteria which is why you need to compare the different interest only products. There are certain providers who will stop providing an interest only lifetime mortgage when someone reaches 75. The loan can extend beyond 75 as long as interest payments are made. The maximum age just means the company will not open a new loan at 75, again it depends on the provider not all have a maximum age.
Many of the providers also allow for rollover options. Once a homeowner reaches age 80 it is possible to rollover the loan into a standard lump sum at which time the interest will begin to accrue. This option is offered in the event a homeowner no longer has sufficient funds to repay the interest.
As a lifetime mortgage product it is part of the SHIP or safe home income plan. All regulations are followed which are set out by the Financial Conduct Authority and Equity Release Council Code of Conduct. One of the protections in place is the ‘no negative equity’ clause. It states that the provider cannot take more assets than just the home for repayment.