Learn what is interest only lifetime mortgages, how they work and their advantages & disadvantages.
Everyone deserves to enjoy their golden years in comfort after a lifetime of struggle and achievements. But, enjoying retired life is not possible if your retirement savings are lacking. Retired people can use lifetime mortgages to supplement their retirement income during ripe years. Lifetime mortgages let you take out a loan against your home, giving you full ownership of your property. Interest is charged on loan principal, which can be paid monthly (Interest Only Lifetime Mortgages) or added to loan principal to be paid when you die or go into long-term care (Lifetime Mortgages).
Interest only lifetime mortgages are a type of loan available only to individuals over age 55 with property value of at least £70,000. You don’t have to provide any income proof to get the Interest only lifetime mortgage. They are cheaper option to a capital and repayment mortgage. The maximum amount you can borrow is generally determined by the value of your property, your age and sometimes your health.
The money you borrow is tax free and can be used for just about anything: for a holiday, new car, pay off an existing mortgage, home improvements, or to help family or children. Borrower gets a lump sum on the loan and pays fixed or variable monthly interest on the principal balance. So, the principal stays exactly the same throughout the term of the loan.
If you select variable monthly interest, then your monthly payments may increase according the interest rates rise. You are allowed to transfer your plan to a new property or switch to a roll up lifetime mortgage scheme. The principal amount is repaid when your home is eventually sold either on death or moved into long term care.
Till that time, you will keep 100% ownership of your home, which means you can retain the full benefit of any rises in the property market. The surplus capital after the sale will be given to your beneficiaries.
Advantages of Interest Only Lifetime Mortgages
- Money released from loan is tax free
- No upper age limit
- 100% ownership of the property
- 100% of property price rises
- Fixed Interest Rate
- Switch to roll-up anytime
- No proof of income needed
- Paying monthly interest avoid a lump sum payment at the end.
Disadvantages of Interest Only Lifetime Mortgages
- The overall inheritance amount you leave will reduce.
- Early repayment penalties.
- Interest Rates increase in variable interest.