Interest Only Lifetime Mortgage
A Lifetime Mortgage is a financial scheme that enables you to release equity from your home. The most common form of Lifetime Mortgage is one that provides you with a lump sum that is repaid when your home is sold, and incurs no interest charges.
What Is An Interest Only Lifetime Mortgage?
An Interest Only Lifetime Mortgage is a type of Lifetime Mortgage that enables you to make monthly repayments in order to reduce the amount of money that will be repaid when your home is sold. By repaying the interest on your loan, you will ensure that:
- The loan that is repaid when your home is sold is the same amount that was provided to you in the form of a loan. You will not incur any extra interest charges – which could be substantial because they are usually compounded.
- You will know exactly how much money will need to be repaid when your house is sold and so you accurate calculations can be made about the value of your estate in the event of your death.
Calculating Your Interest Only Lifetime Mortgage Payments
In order to work out how much money you can repay each month, your Lifetime Mortgage provider uses a loan to value (LTV) percentage calculation.
Other factors are taken into account too, including:
You must older than 55. Your age is an important requirement because it allows the provider to estimate how long they are likely to have to wait until the money they have leant you is returned.
NOTE: Some providers have a maximum age criteria (usually 75-90) for their Interest Only Lifetime Mortgages.
The Value of Your Property
The value of your property is important in order to calculate how much you can borrow as a maximum lump sum.
NOTE: Providers have a minimum value for your home on which they will lend. Typically, this is £70,000.
Regulations for Interest Only Lifetime Mortgages
There are two bodies that regulate the lending of Interest Only Lifetime Mortgages in order to protect consumers: The Financial Conduct Authority (FCA) and the Equity Release Council which has a Code of Conduct. You should always check that an equity release consultant who is advising you on Interest Only Lifetime Mortgages carries the appropriate qualification and is authorised by the FCA.