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 is assured that their monthly repayment amount will not change over time.
The Interest Only Lifetime Mortgage rate will be protected even if mainstream mortgage rates increase.
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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Until recently, the Halifax Retirement Home Plan was an Interest-Only Lifetime Mortgage option, but it was withdrawn in late 2010. Although this is no longer an option, alternatives are still available that offer the same benefits and meet the same needs as the previously available choice.
Are Interest-Only Lifetime Mortgages Available in Pension or Retirement Income?
Interest-only Lifetime Mortgages are available to individuals receiving a pension or retirement income, and there are several options. These options are based on self-certification or multiple pension incomes to warrant a retirement mortgage.
Many mainstream financing institutions offer this option only to individuals under 75, but some specialised lenders will make it available to those aged 80 or older if needed.
What Are the Advantages?
There are several 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 that it requires upfront monthly interest payments to keep the overall balance of the mortgage the same throughout the loan term.
Additionally, the borrower will retain 100 per cent ownership of the property’s value and remain living in the home for the term of the loan. Some other advantages include mortgage terms that run the borrower’s entire life, repayment upon the home’s sale, and the remaining funds paid 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 Mortgage to their new property. In many cases, these advantages will greatly benefit the applicant and the family.
What Are the Disadvantages of an Interest-Only Lifetime Mortgage?
Although there are several advantages to an Interest-Only Lifetime Mortgage, borrowers should be aware of its disadvantages. First, monthly payments will need to be made for the remainder of the applicant’s life to prevent the property from being repossessed.
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 that should not be finalised until all the details have been considered. Applicants should consider all current and future situations and have 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 ensure it is the best choice for the family unit. Finally, it is important to always consult a financing specialist to ensure the chosen Lifetime Mortgage option best meets all the applicant’s needs.
