Advantages
The inheritance you leave will be greater than with standard lifetime mortgages
As monthly interest only payments are being made, only the initial amount borrowed will be repaid when your plan ends. This will therefore be a lower balance than that of a roll-up scheme.
Acts like an interest only, or capital and repayment retirement mortgage
These plans have all the features of a residential mortgage, plus more flexibility. Choose any payment upto 100% of the interest charged, all the interest, or even extra voluntary payments - upto 10%-15% of the original amount borrowed yearly. This effectively makes them manageable as both interest only or capital and interest mortgages, with no proof of income required.
Interest rates are typically fixed for life
You'll know exactly what your monthly interest payments are both now and in the future, enabling you to budget with confidence.
Flexibility if your circumstances change
If you want to stop making interest payments at any time in the future and switch to a ‘roll up’ interest plan, you can with no penalty. Some lenders will still allow ad-hoc voluntary payments.
Options to borrow more
Depending on the lenders criteria, you may be able to take additional borrowing, if the need arises in the future. This would be based on updating your personal criteria such as current age, property value and the outstanding balance at the time.
The money you receive is tax-free
And yours to spend as you wish – a common feature of all lifetime mortgages.
You retain 100% ownership of your property
You remain the legal owner of the property – a common feature of all lifetime mortgages, allowing you to benefit if the value of your home increases in the future.
All lifetime mortgages come with a no negative equity guarantee
Meeting Equity Release Council gudelines, you have the peace of mind knowing that when your plan is finally repaid, your loved ones will never be out of pocket.
Disadvantages
Might not be suitable if you have a large mortgage to repay
An interest only lifetime mortgage will typically allow you to borrow upto around 38% of the value of your home at age 65. So, if you have a mortgage with a high loan-to-value, you may not be able to borrow enough to repay it completely and ‘substitute’ with an interest only lifetime mortgage.
Your means-tested benefits will be affected
As you are receiving a cash lump sum, any current/future means-tested benefits claimed may be affected. Your adviser would always do a benefits check before making any recommendation.
There are early repayment charges (ERCs)
As lifetime mortgages are designed for the long term, if you repaid your lump sum lifetime mortgage early, you may be subject to a penalty. These early repayment charges could be as high as 25% of the amount borrowed, however depending on your equity release lender they could also taper over a fixed number of years..
If you cease payments, the interest will then roll-up.
Stopping any interest only payments will result in the interest instead being added to the loan and compounding over the remainder of the loan. Therefore, the balance may otherwise be higher than originally anticipated.
Your inheritance left will be reduced
Releasing equity from your property, even via an interest only lifetime mortgage will still reduce your overall estate by the amount of the original loan.