Differences Between An Interest Only Mortgage and an Interest Only Lifetime MortgageSeptember 25th, 2013
The retirement mortgage & finance sector is rapidly expanding. A wider range of options are currently available to older people who want to optimise their financial assets in order to fund their retirement. One of these options is equity release, which allows you to release some equity from your property without the need to sell the house. There are many kinds of equity release plan and interest only lifetime mortgages are one of them.
People often get confused between interest only lifetime mortgages and interest only mortgages. Let’s look at the main differences between the two:-
The main difference between an interest only lifetime mortgage and an interest only mortgage is the term of the loan.
An interest only lifetime mortgage is a longer term loan, with no fixed term. The mortgage can essentially go on until the end of one’s life. Interest only mortgages on the other hand are like regular residential mortgages with a fixed pre-agreed term to expiry.
Interest only lifetime mortgages are available to those above a certain age threshold, usually 55 years. These mortgages are part of the retirement finance sector; while interest only mortgages are early life mortgages, and can usually only go on up to retirement. The maximum age that an interest only mortgage can go up to is 80, which is currently the maximum age for the Leeds Retirement Plan.
Interest only mortgages are favoured by first time buyers, or younger people who would prefer to make smaller interest only repayments and think about a repayment plan at a later stage. Eligibility and the loan amount for interest only mortgages are based on whether or not you can and will be able to afford the mortgage.
Interest only mortgages have seen a decline in availability as lenders have pulled their products after FSA intervention, following issues with lack of repayment vehicles & equity retained within the home given the fall in property prices. More recently HSBC & Yorkshire Building Society has withdrawn completely from the interest only mortgage market.
Interest only lifetime mortgages are not designed to be repaid until the property is sold. Eligibility and loan amount for these mortgages therefore depends on the valuation of the property, and the age of the applicant, which determines the expected term of the loan.
Interest only lifetime mortgages have a fixed interest rate for the entire term of the mortgage, which makes it a popular option among those who want to have more control on the end balance on the loan. Interest only mortgages can have varied monthly interest rates over the term of the loan.
Interest only lifetime mortgages are currently one of the most flexible and innovative options within the equity release sector. All interest only lifetime mortgages are protected by the Safe Home Income Plan (SHIP) code of conduct, and come under the purview of the Equity Release Council.