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Equity Review | November 22, 2019

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The Principles Behind the Interest Only Lifetime Mortgage

The Principles Behind the Interest Only Lifetime Mortgage
Kenneth Hardman

An interest only lifetime mortgage is becoming one of the most common examples of an equity release scheme. As an equity release scheme, an interest only lifetime mortgage provides retired homeowners with the option of obtaining a mortgage during their retirement. This is not easy in today’s strict lending environment, however relief is now on hand for people who want a mortgage in retirement.

In order to obtain an interest only lifetime mortgage, first of all a property valuation needs to be undertaken. Based on the current market value of the property, the mortgage provider will determine how much equity the homeowner may release from his property.

The fact that an interest only lifetime mortgage is a form of lifetime mortgage, means that it does not have a fixed term or duration. It lasts for the remaining part of the homeowner’s life. The fact that it is an interest only lifetime mortgage means that the only repayment that the homeowner will have to make is the interest payment. The main advantage of a lifetime mortgage is the fact that the capital loan sum remains the same. It does not increase due to the interest being repaid each month.

More recently, Hodge Lifetime have introduced a form of capital & repayment equity release which works on similar principles to the interest only mortgage. They allow 10% overpayments each year, similar to a conventional mortgage. This has the effect of not only covering the interest charged by the lender, but also a proportion of the capital could be repaid as a consequence. One to certainly bear in mind if one does not wish to commit to monthly payments & would like the flexibility of deciding themselves when to make a repayment.

As with any lifetime mortgages, once the borrower dies or enter into a long term nursing facility, the property will be sold to repay the mortgage. In such cases, more is left from the sales proceeds after repaying the mortgage since that there is no compounded interest amounts to be paid. Only the initial amount that was borrowed by the homeowner will have to be repaid. This means that there is a greater possibility of homeowners leaving an inheritance for their children and grand-children. The remaining amount from the sales proceeds of the property will be left as their inheritance & divide in accordance with their Wills.

The money received from the equity release provider is tax free which means that you do not have to worry about giving away a huge portion of your hard work to the Inland Revenue. Apart from being tax free, the money can also be used for any purposes as equity release lenders place no conditions.

Only specialist equity release lenders such as Stonehaven offer interest only lifetime mortgages. This is one of the reasons why their plans are becoming increasingly popular since the withdrawal of the Halifax retirement Home Plan in August 2011. Stonehaven offer homeowners the possibility to pay off the interest and run for the remaining part of their life not having to worry about any other debt. Another major advantage of Stonehaven equity release is there is always the option to switch the plan over to a roll-up equity release scheme at a later date should finances dictate this to be the case.