Some people take out an interest-only lifetime mortgage and set aside some of their loan to make the interest repayments each month. And by paying off all of the interest each month, the debt will remain the same as the original loan amount, providing all interest repayments are met. But instead of making no monthly repayments, the homeowner voluntarily agrees to pay some or all of the interest each month.īy paying off some of the interest each month, the debt will grow at a slower pace. The senior homeowner receives a loan based on a percentage of their property’s value. How does an interest-only lifetime mortgage work?Īn interest-only lifetime mortgage works the same way as a standard lifetime mortgage. It might be a middle ground if you want to use a lifetime mortgage but don’t want to risk your loved ones receiving considerably less than they otherwise would do in their inheritance. With this variation of a lifetime mortgage, you can mitigate the debt and stop it from growing altogether. Yes, there is a variation of a lifetime mortgage called an interest-only lifetime mortgage. Can you have a lifetime interest-only mortgage? Thus, the lifetime mortgage provider will take almost £137,000 from the £210,000 sale proceeds, leaving you with just around £73,000. But the £65,000 debt over time has snowballed into a debt of almost £137,000. Thanks to inflation, your property sells for £210,000 (minus fees). At 82 – just 12 years later – you move into a residential aged care home, and at this stage, the lifetime mortgage must be repaid through the sale of the property. You take out this loan at 70 years old as a sole homeowner. The loan is charged with compounding interest at 6.4%. Let’s imagine you own a £195,000 home and wish to use a lifetime mortgage to access £65,000 of its value, equating to 33.33% of your equity as you must own the property outright. But this is best understood with an example. In simple terms, a compounding interest rate causes the debt to grow much more quickly.
This means that the interest which is added to the debt each month will be added to the total loan amount and any interest already accumulated. Lifetime mortgages are calculated by adding a compounding interest rate to the current total debt. The rate you’re offered will depend on the company you’re using and possibly details about your property and your age, How is a lifetime mortgage calculated? The average interest rates on a lifetime mortgage can range between 2% and 8%. How much interest do you pay on a lifetime mortgage? This is the case if the lender is an Equity Release Council member. If the lifetime mortgage debt has grown bigger than the value of the property, the lender can only take 100% of the sale proceeds and isn’t allowed to chase you or your estate for more money. Interestingly, the lender won’t be able to chase you for more money than what the property sells for. If there are any remaining funds, these will be given back to you or added to the value of your estate if you have passed away.
The lender takes the money owed to them from the sale proceeds of the property. The lifetime mortgage debt is cleared by the lender selling your home when you no longer live there, either because you have moved into aged care or have passed away. We work with Mortgage Advice Bureau Later Life who provide information about your options.
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