Any person aged 55 or older can apply for an Interest Only Lifetime Mortgage.
For this type of Lifetime Mortgage, as long as the monthly interest payments are made, the mortgage balance will remain the same throughout the life of the loan.
Most often, these interest rates are fixed for life, so the borrower has an assurance that their monthly repayment amount will not change over time.
Even if mainstream mortgage rates increase, the Interest Only Lifetime Mortgage rate will be protected.
Are These Types Of Mortgages Still Available?
The FCA has been pressuring mortgage lenders to withdraw Interest Only Lifetime Mortgages if no repayment plan is in place. However, this will generally only apply to pre-retirement mortgage lending.
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Up until recent years, the Halifax Retirement Home Plan was an Interest Only Lifetime Mortgage option but was withdrawn in late 2010. Although this is no longer an option, there are still alternatives available that can have the same benefits and meet the same needs as this previously available choice.
Are Interest Only Lifetime Mortgages Available in Pension or Retirement Income?
Interest Only Lifetime Mortgages are available to those individuals collecting a pension or retirement income and there are a number of different options as well. These options are based specifically on a self-certification basis or multiple pension income to warrant a retirement mortgage.
Many mainstream financing institutions only make this option available to individuals under the age of 75, but there are some specialised lenders who will make this offer for those who are age 80 or older if needed.
What Are the Advantages?
There are a number of advantages associated with an Interest Only Lifetime Mortgage that make it a great choice for many Lifetime Mortgage applicants. One of the biggest advantages of this type of mortgage is to pay back monthly interest payments upfront to keep the overall balance of the mortgage the same throughout the term of the loan.
Additionally, the borrower will be able to retain 100 per cent ownership of the property value and remain living in the home for the term of the loan. Some other advantages include mortgage terms that will run the borrower’s entire life and repayment can be made upon the sale of the home with the remaining funds being paid out to beneficiaries as part of the borrower’s inheritance.
Finally, an Interest Only Lifetime Mortgage is portable, so even if the applicant moves, they can transfer the Lifetime Mortgage to their new property. In many cases, these advantages will greatly benefit not only the applicant but also the family.
What Are the Disadvantages of an Interest Only Lifetime Mortgage?
Although there are a number of positive points associated with an Interest Only Lifetime Mortgage, there are also disadvantages of which borrower’s need to be aware. First, in order to keep the property from repossession, monthly payments will need to be made for the remainder of the applicant’s life.
Some other disadvantages include reduced beneficiary inheritance, early repayment penalties, or changes in the borrower’s circumstances that can make the monthly payments unaffordable.
Choosing an Interest Only Lifetime Mortgage is an important decision and should not be finalised until all the details have been considered. Applicants should think about all current and future situations as well as having action plans in place should any of these scenarios arise.
Also, the decision to choose this type of Lifetime Mortgage should be discussed with the applicant’s partner and family members to make sure it is the best choice for the family unit. Finally, always consulting with a financing specialist is important to make sure the Lifetime Mortgage option chosen best meets all of the applicant’s needs.