Depending on how you have conducted your research you may already be aware of what a lifetime mortgage is all about. For those who do not know it is a mortgage allowing you to remove equity from your home, where you do not make a repayment on the capital sum until death. At death the full amount of the loan is due including any compounded interest. The interest is the “fee” the provider earns for lending homeowners money. The sum of funds provided in the mortgage is tax free and can most often be used as best fits the homeowner. Interest Only lifetime mortgage is slightly different than the standard lump sum option.
Under this type of equity release the homeowner will repay the interest on a monthly basis. The interest is based on an annual percentage rate. Usually this rate is broken down into monthly increments based on the principle sum. Since the principle sum does not change for the life of the mortgage, the interest will remain the same. The only way the interest payment will change is if the rate is variable instead of fixed. A variable rate changes with the Bank of England base rate change.
There is one other way the interest payment can change on a monthly basis. This happens when a homeowner has a flexible repayment schedule. There are certain providers willing to lower the monthly repayment to £25 per month. Any unpaid interest compounds onto the principle sum and must be repaid at the end of the homeowner’s life or when they move to a long term care facility.
As with any financial products there are pros and cons. These advantages and disadvantages determine whether this lifetime mortgage would be right for you.
With an interest only loan the capital sum remains the same until the day it is paid off. This is beneficial for homeowners who wish to leave behind an inheritance for surviving family members. Other lifetime mortgages have compounding interest that can accrue to the amount of the home value. For some an interest only lifetime mortgage can be a loan with a built in inheritance protection.
The principle balance remains unpaid until death occurs or the person moves to a new home. This is also beneficial because there is no worry of having to repay the full amount during life.
For those who can no longer afford interest payments there is an option to convert the mortgage into a roll up lifetime mortgage.
It is necessary to have funds to repay the interest. While some offer flexible, low monthly interest repayments this can actually add to the principle balance wiping out the natural protection the loan has to offer.
Most providers also require a check of income to ensure there is enough to cover the repayments; however, not all of them will do income verification which can make it an affordable option for those who are comfortable making a small payment.View Interest Only Lifetime Mortgage Products Here