Interest-payment lifetime mortgage vs lifetime mortgage with voluntary repayments
Although an interest-payment lifetime mortgage and a lifetime mortgage with voluntary repayments are similar, there’s one key difference to note - payments.
With a lifetime mortgage with voluntary repayments, you can choose how much you wish to repay and when - including the option to make low or no monthly repayments at all. These ad-hoc repayments allow you to either pay some or all of the interest or even reduce the capital on which the interest is charged, but they're not mandatory. It's important to note, though, that plans come with an annual repayment limit. And if you go over your limit, you’ll incur early repayment charges. Speak to an equity release adviser to find out more.
With an interest-payment lifetime mortgage, meanwhile, before you take out your plan, you commit to paying some or all of the interest off each month as a regular payment. That could be from £25 a month up to 100% of the interest.
The benefit of this is you can manage the size of your loan from the outset, potentially meaning there'll be less to pay when your plan ends, which is typically when the last remaining applicant passes away or moves into long-term care and the home is sold. That could allow you to pass on more of your property wealth to your loved ones as part of your estate.
Interest-payment lifetime mortgage vs interest-only mortgages
Unlike other interest-only products, such as interest-only or retirement interest-only mortgages, with an interest-payment lifetime mortgage, there’s no affordability check. That means if you have adverse credit or a lower income, you may be able to still take advantage of your home’s value to help you live a better later life, providing it’s the right product for you.
You also have to ensure the payment amount you choose is both affordable and sustainable. Even though you have the right to stay in your home for as long as you wish you may face a charge and an increase in interest rate if you stop making payments - which will reduce the value of your estate. You'll also revert to a lifetime mortgage with voluntary repayments should you stop making monthly interest repayments, which is subject to compound interest.
But by having more control over how much you pay each month, you can choose a payment amount that’s manageable and right for you. That way you’re not overstretching yourself financially but you’re still able to help manage the size of the loan.
Want to know more about interest-payment lifetime mortgages?
At Key, we don’t advise on interest-payment lifetime mortgages. If your Key equity release adviser believes this is a suitable option for you, we can refer you to Key Group’s whole-of-market specialist advice service; The Equity Release Experts, who’ll be able to explain your options in more detail.
Request a callback from a member of our friendly team today or call 0808 252 9170.
If we refer you to The Equity Release Experts, and you choose to go ahead, the advice fee will be £1,799.