Equity Release Schemes - Interest Only Mortgage

Interest only mortgage


Interest only mortgages offer a cheaper alternative than a capital & repayment mortgage.


Use of an interest only mortgage can extend to purchasing a new home, or remortgage
an existing property. As only the interest is paid, the monthly payments are lower as no
repayment of capital is required. For example borrowing £100,000 at an interest rate of
5% over 25 years would cost £416pm on an interest only & £591pm on capital repayment.


Types of interest only mortgages

Interest only equity release plans are similar to interest only mortgage schemes; you borrow money from
an equity release provider and payback the capital sum at a pre-determined point in the future. In the meantime
you need to make monthly payments to repay the interest accumulated on the loan.There are however, some
differences between traditional mortgage schemes and interest only equity release mortgage schemes.


Equity release interest only v residential interest only mortgages

The main difference between the two schemes is the calculation basis of the amount that can be borrowed. An
interest only lifetime mortgage calculation is based upon the value of your home and the age of the youngest.
With a residential mortgage, the process is more complicated. This is due to the FCA crackdown on interest only
mortgages. For mortgages that lend into retirement, most mortgagees will only accept pension or retirement
income in the assessment of how much can be borrowed. Again, their are lenders who fall outside this criteria
and it would be advisable to speak to one of our independent mortgage advisers to establish eligibility.


Can I have a mortgage in retirement?

Most people have a common misconception that they cannot obtain a mortgage in retirement. This is wrong.
If a mortgagor can show that loan repayments are affordable on their pension income, getting an interest only
scheme should not be too difficult. Options for interest only mortgages into retirement are limited
these days due to the reduction in loan-to-value ratios. Nevertheless, with new interest only lifetime mortgages
from the likes of Stonehaven who provide a self-certification mortgage, lack of income would pose no problems.


Advantages of interest only mortgages


• Enable people to afford cheaper mortgage repayments in times of financial hardship

• Provide greater flexibility by allowing applicants their choice of repayment vehicle

• An interest only mortgage can be repaid early should investment performance excel

• Interest only mortgages can be a cheaper option than renting in high property value areas

• First time buyers can get on the property ladder quicker as long as a repayment vehicle is taken later

• Interest only lifetime mortgages are now available which allow borrowing with no proof of income


Disadvantages of interest only mortgages


• No capital is ever repaid unless an investment vehicle is taken out

• The investment vehicle may underperform which could leave a shortfall upon repayment

• Mortgage lenders are now clamping down on new and existing interest only mortgages

• The FCA is putting pressure on mortgage lenders to offer a capital and repayment mortgage

• If house prices fall you could end up in a negative equity situation

• You may never get round to taking out an investment vehicle should interest rates rise


Further information and things to think about with interest only mortgages

Borrowing money before or into retirement is always a big decision that will impact on your future plans.
Independent mortgage advice is paramount in ensuring you have access to all the best mortgage deals.
Let our expert mortgage advisers research the latest rates & products based on your needs. From lifetime
fixed rate mortgages to tracker rate plans, we can source the whole of the mortgage market on your behalf.


All Compare Equity Release mortgage advisers possess lifetime mortgage qualifications and can therefore
advise whether interest paying equity release schemes or interest only mortgages would be best. They can
provide advice in the comfort of your own home or over the telephone, whichever is most convenient.


So why not book an appointment now by finding a local mortgage adviser near to you.

Alternatively, pick up the telephone and call our FREEPHONE number on 0800 678 5169 today.




These are interest only lifetime mortgages & interest only mortgages.

To understand the features and risks, ask for a personalised illustration.

Your home may be repossessed if you do not keep up repayments on your mortgage.


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These are lifetime mortgage & home reversion plans. To understand the risk & features of these plans, request a personalised Key Facts Illustration.

CompareEquityRelease.com helps you to compare and arrange equity release schemes from the whole of the equity release market:

Aviva | Bridgewater | Hodge Lifetime | Just Retirement | LV= | more2life | One Family | Retirement Advantage | Pure Retirement L&G Crown