Interest Only Lifetime Mortgage

Interest-only lifetime mortgages are a brilliant idea for the right applicants, however, they’re not suitable for everyone aged 55+. There are lots of alternative, generally much cheaper, mortgage products available that our experienced advisors will consider beforehand, these are:

• Traditional mortgages for older people. These can run to an old age of 85+, there are now lenders available that will allow a 60-year-old to take out a 40-year mortgage term which can be a great alternative to interest-only lifetime mortgages. We can also explore capital repayment, interest-only mortgages, or part and part mortgage options for you so you can see the difference in monthly payment.
• Retirement interest-only mortgages. These are assessed like a traditional mortgage, on income, affordability, and credit scoring. This alternative to an interest-only lifetime mortgage, works well where the applicant, or both applicants if a joint application, have good income throughout retirement.
• Other alternatives include a further advance mortgage from an existing lender if there is already a mortgage on the property. Also, secured loans may work well when capital raising is required but are fixed into a current rate that has early repayment charges.

Our experienced later-life mortgage brokers will understand your objectives and recommend the best way forward for your individual needs, potentially saving you lots of money and time.

Interest only lifetime mortgages work by allowing you to make monthly interest payments to avoid the erosion of equity on your property. This will in effect, allow you to leave a bigger estate in your Will to your beneficiaries.

With regular lifetime mortgages, if no monthly payments are made, the interest rolls up in a compound way, and you pay interest on your interest, then interest on your interest etc which, depending on your age and interest rate, can erode your capital quickly. For example, if you borrowed £100,000 at age 65 and made no monthly payments, depending on current interest rates, this figure could double every 10/15 years, so in the event of your death or you are entering long term care at age 85, the loan could reach £300,000+.

With an interest only lifetime mortgage, if monthly payments are made for duration, the amount of loan stays the same. For example, if you borrowed £100,000 at age 65, providing that you’ve made the monthly interest payments in full, the loan will still be £100,000 when you die or enter long term care. Your family can settle this from the sale of your property or another asset to repay it along with any final settlement fees.

You’ll have to pay a monthly payment with an interest-only lifetime mortgage, this will be made up of solely interest, therefore the loan amount will stay the same. How much you’ll have to pay will depend on the interest rates at the time of application. Rates are usually fixed for life with an interest only lifetime mortgage.

Here’s an example of what you pay.

Interest-only Lifetime Mortgage loan amount (purchase or releasing equity) = £100,000

Interest rate on application = 6% fixed

Interest payment = £6,000 per annum, paid £500 per month

This is calculated by 6% x £100,000.

Loan amount stays at £100,000

These figures are for illustrative purposes only and just to give you an idea of payments. Your later-life advisor will go through your individual payments with you during your call.

There will also be set-up costs of the loan, like with a traditional mortgage, these include broker fees, arrangement fees, legal advice, survey fees, valuation, and any ad-hoc fees associated with your application.

If you can’t afford to pay the full £500, as in the above example, your lifetime mortgage lender would allow you to pay a smaller amount of what is affordable to you. By paying something towards the interest, this slows the erosion of the equity in your property.

Interest-only lifetime mortgages can work brilliantly for the right individual, or couple, looking to release equity for one reason or another or purchase a new home. It’s important that you understand both the advantages and disadvantages of this type of lending.

The advantages of an interest-only lifetime mortgage are:

• Tax free, if you are releasing equity from your property, the proceeds from the loan are tax-free, paid either as a lump sum or in smaller chunks as required.
• If you’re purchasing a new property with an interest only lifetime mortgage, you’ll be able to afford a higher purchase price than without a mortgage.
• You’ll retain 100% ownership of your home with an interest only lifetime mortgage and keep the right to live there until you die or enter long term care. If it’s a joint application, your partner will have the same right, they won’t be kicked out of their home.
• Interest only lifetime mortgages are not assessed on affordability like retirement interest only mortgages and traditional mortgages. They are available to applicants that are asset rich and income poor, also there are bad credit options available.
• Rates is fixed for life, typically with an interest-only lifetime mortgage your interest rate is fixed for life. This gives you peace of mind and reassurance that you’re protected from any future rate increases and allows you to budget better as you know exactly how much you need to pay.
• More inheritance to leave in your Will, if you are concerned about eroding away at your capital via a traditional lifetime mortgage, paying the interest, if affordable to you, will ensure that the loan amount stays the same and you maintain your equity.
• Stop or reduce payments at any time, with an interest only lifetime mortgage, you can stop or reduce the monthly payments at any time if these become unaffordable. What happens here is that once you stop or reduce the amount, the unpaid interest will then start to ‘roll-up’ from that point, i.e. you’ll start paying interest on your interest, then interest on your interest on your interest etc.
• They are portable, meaning that if you wanted to move home in the future, providing that the lender is ok with the new property, you’ll be able to move your loan to your new home.

Interest-only lifetime mortgages are not for everyone, and an alternative lending product may be better suited depending on your situation.

The disadvantages of interest only lifetime mortgages are:

• Means tested benefits, if you receive any means tested benefits, these could be reduced or stopped altogether affecting your income. Our specialist team will guide you through this based on your personal situation.
• Early redemption fees, interest only lifetime mortgages are not a short-term lending facility, therefore, there will be large fees associated with an early settlement. If you are looking for more short-term lending, bridging loans may be better suited. We can help and provide advice on these for you also as and when required.
• Reducing your inheritance, something to consider by taking a loan secured against your property is the reduction in the value of your estate. In the event of your death, you’ll be leaving a lower estate value in your Will. By paying the interest, you’ll be keeping this to a minimum by keeping the loan amount the same. In the event of your death, your loan will need to be repaid, usually from the sale of your property.
• If you cannot afford to repay the monthly payment in the future, your interest will then roll-up and erode at your capital quickly.

It’s important to speak with an experienced later-life mortgage specialist to fully understand both the advantages and disadvantages on lifetime mortgages bespoke to your individual situation.

Yes, there are lots of over 60s mortgage options available in the UK for mature borrowers.

With the over 60s working much later, grown up children at home for longer, and life generally more expensive, there is a large demand for over 60’s mortgages.

Over 60s mortgages are available for:

• Purchase a new property.
• First time buyers age 60+.
• Releasing equity.
• Divorce or separations.
• Debt consolidation.
• Complicated situations.

There are 3 types of mortgages available to the over 60s, these are a traditional mortgage, a retirement interest only mortgage, and a lifetime mortgage.

An experienced advisor will have in-depth lending criteria knowledge and will recommend the most cost-effective way forward for you depending on your personal situation.