Interest Only Lifetime Mortgage: A Guide to Home Financing

An interest only lifetime mortgage can be a great way to release some cash from your home without having to move. This type of mortgage allows you to borrow money based on the value of your home, minus any outstanding mortgage or other debts.

The amount you can borrow is typically based on the age of the youngest homeowner and the value of your property. For example, if you're 65 and your home is worth £200,000, you might be able to borrow £80,000.

You'll only pay interest on the amount borrowed, not the full value of your home, which can help keep your monthly payments lower. This can be a big relief for homeowners who are living on a fixed income.

Interest only lifetime mortgages are often taken out by homeowners who want to release some cash for a specific purpose, such as paying off debts or funding a grandchild's education.

An interest only lifetime mortgage is a type of equity release product that allows homeowners to borrow money without having to make repayments on the interest accrued.

The loan is secured against the value of your home, which means that the lender has a claim on it if you're unable to pay back the loan.

You can borrow up to 50% of the value of your home, but this can vary depending on your age, health, and the value of your property.

The interest on an interest only lifetime mortgage is typically rolled up and added to the loan, meaning that you won't have to make any repayments on it.

This can be a significant advantage for homeowners who are struggling to make ends meet, as it allows them to access a lump sum of cash without having to worry about making repayments.

You can release equity from your home with an interest-only lifetime mortgage, but you'll need to be at least 55 years old to qualify.

With an interest-only lifetime mortgage, you agree to make interest payments each month, usually at a fixed level, which means you can keep the loan amount the same by paying off the interest.

You can choose to pay the full interest or just some of it, which will reduce the amount of interest payable at the end of the plan. This means you can make monthly payments that fit your budget.

The interest is rolled up each month on a compound basis and added to the loan amount if you stop making the voluntary interest payments at any time. This is similar to a regular lifetime mortgage.

Interest-only lifetime mortgages are secured against your property and repaid through the sale of your home when you pass away or move into care. If it's a joint loan, the house isn't sold until both of you pass away or go into care.

The interest-only lifetime mortgage providers we deal with support the Equity Release Council's no-negative equity guarantee, which gives your beneficiaries protection in case the future value of your property doesn't cover the full amount due when the plan ends.

You can spend the money you release from your home as you wish, but you must meet certain eligibility criteria, such as being aged 55+.

As you're paying off the interest alone, the balance owed on the loan itself remains the same, which means you can make monthly payments that fit your budget.

Both interest-only lifetime mortgages and equity release schemes were created as a means for individuals nearing retirement age to get money from their homes, and both options have certain pros and cons that may make them more or less viable for certain homeowners.

To check your eligibility for an interest-only lifetime mortgage, you can call us on 0808 178 3055. We'll arrange a free, no-obligation appointment and interest-only lifetime mortgage advice from a specialist.

You'll need to be a UK resident and aged 55 or over to be eligible. If you apply as a couple, the youngest applicant on the deeds of the property must be 55 or above.

You must own your own home in the UK, typically with a value of £70,000 or more. This is a typical requirement, but each lender may have their own criteria.

To confirm your eligibility, you can request a call back and we'll call when it's convenient for you.

You can borrow less money with an interest-only lifetime mortgage compared to a traditional mortgage loan. The amount you can borrow depends on factors such as the property's location and value, and how much equity you have in it.

Most lenders will check that your income is sufficient to pay the interest on the level of loan you are seeking. Your age is also taken into account, with older borrowers able to borrow more money.

To give you a rough idea, the average release amount for new customers choosing a lump sum lifetime mortgage is £110,969, according to the Equity Release Council's lending figures for Q2 2024. You may also be eligible for an enhanced lifetime mortgage that enables you to borrow more money, but this depends on certain health or lifestyle factors.

The maximum loan value for older borrowers is up to around 50% of the property value, with a minimum loan of £10,000 being typical. This means that if your property is worth £200,000, you could potentially borrow up to £100,000.

Here are some popular uses for an interest-only lifetime mortgage:

Keep in mind that you'll need to make interest payments on the loan, which can add up over time. It's essential to carefully consider your options and seek advice from a financial expert before making a decision.

An interest-only lifetime mortgage can be a great option for homeowners who want to release some cash from their property without having to sell it. This type of mortgage allows you to use some of your retirement income to pay the interest on the loan.

For example, a couple in their 60s used an interest-only lifetime mortgage to help their son get onto the property ladder and carry out much-needed repairs to their home. They were able to release some cash from their property and use it to pay the interest on the loan, while still retaining their homeownership.

The benefits of an interest-only lifetime mortgage are numerous. You retain homeownership, so any future increase in value will still benefit you and your family. You also get tax-free cash, which you can spend however you like.

An interest-only lifetime mortgage can be a good option for retirees who want to use their retirement income to pay the interest on the loan.

This type of mortgage appeals to couples who have some surplus retirement income, but not enough savings to meet their short-term financial needs.

They can use the cash they receive to maintain their home for a comfortable retirement, or help their son get onto the property ladder.

For example, a couple may use the cash to carry out much-needed repairs to their home.

An interest-only lifetime mortgage allows them to maximise the inheritance they will leave to their son and other family members.

This is because they are only paying the interest on the loan, not the capital amount, which means the loan amount remains the same over time.

One of the biggest advantages of this option is that you retain homeownership, so any future increase in value will still benefit you and your family.

You can breathe a sigh of relief knowing that interest rates are fixed, so your monthly repayments will never change and your debt will never increase.

The cash released is tax-free, which means you can spend it however you like, without worrying about setting aside a chunk for the taxman.

You have the flexibility to cease making payments anytime, which will switch your plan to a 'roll-up' mortgage.

The loan is repaid by selling your home when you go into permanent care or die, so you don't have to worry about repaying the loan amount in your lifetime.

This option is specifically aimed at over-55s, so if you fit the bill, you qualify.

You can still move house if the new property meets the criteria, and you can take your mortgage with you.

Unlike some other options, this one is not income-based, so the only factors considered are your age and property value.

You can unlock tax-free money from your home by taking out other lifetime mortgage types or opting for a home reversion scheme. There are several alternatives to interest-only lifetime mortgages.

Here are some options to consider:

It's always a good idea to have a plan in place for how to spend the money and how you'll make the payments when the time comes.

If you're considering alternatives to home financing, you have several options to explore. One alternative is a drawdown lifetime mortgage, which allows you to take out your loan in instalments, withdrawing from an interest-free reserve account as and when you need it.

Drawdown lifetime mortgages can be a great option for those who don't need a lump sum upfront. You can withdraw the funds as needed, which can be helpful for managing your finances.

Another alternative is a roll-up lifetime mortgage, which takes out a tax-free lump sum with no monthly payments, and pays off the loan plus interest when you move into permanent residential care or die.

Roll-up lifetime mortgages can be a good choice for those who want to release equity from their home without monthly payments. However, keep in mind that the loan plus interest will be paid off when you move into care or pass away.

If you have a medical condition, you may be eligible for an enhanced lifetime mortgage, which allows you to unlock extra cash at better rates.

Enhanced lifetime mortgages can provide better rates for those who need them most. This can be a great option for those who want to release equity from their home to cover medical expenses.

You can also consider a flexible lifetime mortgage, which is a plan where you can make voluntary payments at will to reduce your total loan amount.

Flexible lifetime mortgages give you more control over your finances. You can make payments as and when you need to, which can be helpful for managing your debt.

Lastly, you can look into a home reversion, which is a plan where you unlock tax-free cash from your home by selling a portion (or all) of it to the equity release lender.

Home reversion schemes can be a good option for those who want to release equity from their home without taking on debt. However, keep in mind that you'll be selling a portion of your home, which can impact your inheritance.

If you're considering an interest-only lifetime mortgage, it's essential to understand the key differences that set it apart from other mortgage plans. There are five fundamental ways an interest-only lifetime mortgage stands out: you only repay the interest in regular payments, there isn't an upper age limit, interest rates can be fixed for life, there isn't a specified end date, and you can stop making the interest payments any time.

Interest-only lifetime mortgages are becoming increasingly popular among over-55s because they allow you to retain full ownership of your home and any increase in the value of your property will be reflected in the value of your estate when it's sold. This can be a fantastic option for more senior borrowers, as the older you are, the more equity you can release.

One of the key benefits of interest-only lifetime mortgages is that they don't penalize older borrowers. In fact, the calculations of interest-only lifetime mortgage lenders are based on the age of the youngest applicant and the property's current market value.

It's worth noting that the monthly payments for an interest-only lifetime mortgage will usually be significantly lower than with a standard residential repayment mortgage, but the interest rates are higher. This means that the amount of interest you pay over time will be greater without increasing your share in the ownership of the property.

Here's a breakdown of the differences between an interest-only lifetime mortgage and equity release:

It's essential to consider these differences and weigh the pros and cons before making a decision.

Interest-only lifetime mortgages are created for those nearing retirement age, allowing them to access the money they need to live a healthy and happy life post-retirement.

To qualify, lenders will look at your predicted or current retirement income, including pension income, savings, investments, and any other form of income. The higher the amount you can make in payments, the greater amount you stand to receive from your interest-only lifetime mortgage.

This means that lenders will consider your retirement income as a factor in determining how much you can borrow. The amount you can borrow will be based on how much you can afford to pay back, not just your current income.

A Rio is a type of retirement community that offers a resort-style living experience for seniors.

These communities often provide a range of amenities, such as golf courses, swimming pools, and fitness centers, which can help promote an active and healthy lifestyle.

In fact, many Rios are designed to be self-contained, with residents having access to on-site services and amenities that cater to their needs.

Residents of Rios often pay a one-time fee, known as an entrance fee, which can range from $100,000 to over $1 million, depending on the community.

This fee typically covers the cost of a home or villa, as well as access to amenities and services.

Lenders will typically look at your predicted or current retirement income to determine how much you can afford to pay towards an interest-only lifetime mortgage.

To qualify for an interest-only lifetime mortgage, you'll need to demonstrate a steady income stream in retirement, which could include pension income, savings, investments, or other sources of income.

The higher your predicted retirement income, the more you'll be eligible to borrow from an interest-only lifetime mortgage.

In fact, lenders will divide your predicted retirement income into monthly payments to determine how much you can afford to borrow.

To give you a better idea, here's a rough estimate of how much you might need to demonstrate in retirement income:

Keep in mind that these are rough estimates and the actual amount you'll need to demonstrate will depend on your individual circumstances and the lender's requirements.