A Lifetime Mortgage Permitting Monthly or Partial Repayments
The word ‘Interest only’ is a popular and much debated term in the news today for many people either reaching retirement, or living in retirement. For many babyboomers, the interest only lifetime mortgage provides a practical solution to those possessing interest only mortgages with lenders demanding immediate repayment. Many of this age group have experience of managing debt through their lives & feel quite capable of continuing to do so into retirement. The problem has been that many conventional mortgage lenders have withdrawn or even reduced their mortgage lending into retirement. One such instance of this was the Halifax Retirement Home Plan Scheme.
However, now equity release companies such as Stonehaven have seen the gap in this market & have developed an interest only mortgage that can now run for the rest of one’s life. The interest only lifetime mortgage benefits mortgagors looking to consolidate their residential mortgage & secure the balance over the rest of their life.
How interest only lifetime mortgages have changed the perception of the equity release market
Equity release schemes have traditionally come with the ‘spending the kids inheritance’ tag which sometimes has undermined the industries image. The reason being is these forms of equity home loans have a roll-up interest principle, whereby the interest is compounded resulting in the balance increasing over time. In response to this, certain equity release companies have launched an equity release interest only lifetime mortgage whereby some, or all of the interest can be repaid. In fact Hodge Lifetime & now the Aviva Flexi Lifetime Mortgage can now even accept repayment of upto 10% of the original capital borrowed as an annual allowance. This allows for the total management of the final balance of the lifetime mortgage. This is great news for those who wish to protect their final inheritance, as they can now determine how much the annual balance will be. In essence, interest only lifetime mortgage offers fund management of your ultimate balance.
How does an interest only lifetime mortgage work?
Interest only lifetime mortgages are available to anyone over age 55, owning their main residence and which must have a value of greater than £70,000. Like most equity release schemes, the borrower will have an upper limit as to how much they can borrow based on their age & property value. They can then decide how much of this they wish to take initially to fulfill their financial objectives. Based on this amount, the lender will then charge interest at their pre-agreed rate which can start from 4.94% (5.20% APR) and fixed for life. The mortgagor then pays these interest payments, usually monthly, to the lender which results in the settlement of the interest charged. The resultant effect of this is that the balance will therefore remain level.
There are now some variances on this theme, as companies such as Hodge Lifetime now offer their own Retirement Mortgage Plan which is based on affordability & not the age/property value, like Stonehaven equity release. This can have the effect that someone aged 55 could theoretically borrow upto 50% of the property which is significantly higher than Stonehaven at the same age.
Stonehaven were the forerunners in the interest only lifetime mortgage market. They launched their Interest Select Plus range around 7 years ago when they were funded via Santander. More recently there was the Halifax Retirement Home Plan whereby Halifax offered an interest only basis mortgage based on affordability. Unfortunately, the Halifax Retirement Home Plan was withdrawn in 2011 and since then new interest only lenders have started seeing a gap in the market: –
- Canada Life – specialists in the area of the interest lifetime mortgage, (formerly Retirement Advantage and Stonehaven) and have four tiered interest only products ranging from their most popular product which is the Interest Select Lite at 5.46% upto the Interest Select Max with the highest rate of 6.30%. Each tiered interest rate has its own maximum lending limit. Therefore, the interest rate applicable will be determined by the size of the release, as a percentage of the overall property value. Retirement Advantage allow you to choose your monthly payments, which can be anywhere between £25pm up the full amount of interest charged. No affordability checks are required as any payment is classed as a ‘contribution’ towards the interest. Effectively, it could be classified as a ‘self-cert mortgage’.
- Hodge Lifetime – now offer two interest repayment products; one which is based on affordability and is called the Retirement Mortgage Plan; the second a roll-up equity release plan which allows repayment of some capital each year. Firstly, the Hodge Retirement Mortgage Plan starts at age 55, and is designed for people with sufficient pension income in, or near retirement to fund their monthly mortgage interest only payments. The amount that can be borrowed if affordability checked and therefore similar in principle to any residential mortgage, the difference here being this mortgage will run for the rest of their lives. The second plan is the Hodge Flexible Lifetime Mortgage plan which is a roll-up equity release scheme, but permits upto 10% of the original capital borrowed to be repaid with NO penalty. There is no permanent commitment to Hodge for any amount & this repayment facility is purely at the behest of the plan holder.
- more2life – followed in Canada Life’s shoes with their Interest Choice Plan. Again, the interest only lifetime mortgage scheme allows for monthly repayment of interest. However, whereas Canada Life have four tiered rates of interest, more2life have the single rate of 5.60%. Therefore, borrowing £25,000 would equate to monthly payments of £116.67. More2life’s Interest Choice Plan will allow payments of interest anywhere between £25pm upto the full amount of interest charged by the lender. Any top ups on this plan will however be only available on a roll-up basis & will therefore not permit any repayments of interest on this element.
How much can I borrow on an interest only lifetime mortgage?
For an indication of the maximum that could be borrowed by Canada Life or Just Retirement use the interest only lifetime mortgage calculator tool on our homepage. For the Hodge Lifetime Retirement Mortgage you will need to speak to an equity release adviser with specialist knowledge of the Hodge Plan as an affordability check will need to be conducted. Alternatively, you can use our smartER research tool.
To speak to an adviser either call 0800 471 4796 or email email@example.com
For additional information on other flexible lifetime mortgage plans click the following links: –
These are interest only lifetime mortgage plans. To understand their features and risks, please ask for a personalised illustration.
Your home may be repossessed if you do not keep up repayments on your mortgage.