If you’re a homeowner looking to raise funds from your home, equity release could be for you. If you have children or beneficiaries in your will and you’re wondering how equity release could affect their inheritance, perhaps you should consider an Interest Only Lifetime Mortgage?
Read on to find out more about how these schemes work.
Like with a Lifetime mortgage, the interest only portion relates to how the interest of the loan is repaid. With many lifetime mortgages, the interest is paid when the property is sold. However, by taking an interest only option, you can pay back the interest on the loan amount, every month.
Interest Only Lifetime Mortgages end when the last partner in homeownership dies or goes into permeant care. These are also sometimes known as ‘Equity Release Mortgages’, ‘Pensioner Mortgages’ or ‘Retirement Mortgages’.
Interest Only Lifetime mortgages are designed specifically with beneficiaries of your will in mind. When you pay back the interest on the loan, you are essentially protecting the funds left in your estate. This allows the maximum amount of money to be passed on to your loved ones.
To find out more about Equity Release, take a look at our guide.
By paying back the interest owed, in small monthly instalments. These mortgages stop the cost of the loan from compounding rapidly, like with a conventional lifetime mortgage, where the interest is rolled up. It is also worth noting that you can also find repayment lifetime mortgages, where you can pay back the capital, as well as the interest of the loan, in instalments.
Another feature of interest only lifetime mortgage is that the interest rate remains fixed for the entirety of the mortgage term, so you can plan your monthly budget accordingly. Some plans will also allow you to pay back the interest on a more ad hoc basis, and you may be able to pay back up to 10% of the mortgage capital, as a yearly allowance. This makes it possible for a borrower to pay back the full lifetime mortgage loan before they die.
If you wish to move after taking out a lifetime mortgage, under many agreements, you can get permission to ‘port’ your mortgage. However, if you move to a lower value property, you may have to repay part of your lifetime mortgage.
If you are thinking about taking out an interest only lifetime mortgage, it is highly advisable to speak to an independent mortgage broker beforehand. They can help you find the most affordable deal for your financial circumstances.
Charles and Lorraine own their £200,000 home and chose to borrow £60,000 through an interest only lifetime mortgage charged at 5.90% APR. By choosing to make monthly repayments of £663.11, the total cost of the loan, at the end of the term, was £79,573.67.
To find out more about equity release, take a look at our frequently asked questions article.
Equity Release schemes incur financial risk, so it is vital that if you are considering a lifetime mortgage, you speak to a qualified financial advisor beforehand. Get in touch with one today for your free, no-obligation quote.
I need a little help to understand the process. The adviser guided me through everything and was happy to have my family present during the meetings.
Bill Westwood, London
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THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME. YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE OR ANY OTHER DEBT SECURED ON IT.
IF YOU ARE THINKING OF CONSOLIDATION EXISTING BORROWING YOU SHOULD BE AWARE THAT YOU MAY BE EXTENDING THE TERMS OF THE DEBT AND INCREASING THE TOTAL AMOUNT YOU REPAY.
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