How Flexible are the Monthly Payments on an Interest Only Lifetime Mortgage?September 25th, 2013
Interest only lifetime mortgages have become increasingly popular among customers lately thanks to their flexibility and the control they offer over repayments. But how flexible are the monthly payments really? And which providers offer an actual interest only lifetime mortgage?
The two providers currently offering true interest only lifetime mortgages are Stonehaven and more2Life. Hodge Lifetime offers a flexible repayment mortgage, which allows flexible repayments on the loan amount, but not in the form of monthly interest repayment. Stonehaven’s Interest Select and more2Life’s Interest Choice Plan are the two lifetime mortgages offering monthly interest repayment options.
Both plans allow you to pay a minimum of £25 per month by way of interest repayments, and a maximum of the entire interest amount. Clients are therefore free to choose how much to repay depending on their priorities and budget. The interest which is not repaid is added to the balance and will end up as compounded interest on the future balance . This allows you to have full control on how much interest you repay each month and potentially even keep the end balance on the loan exactly the same as the original interest only balance, which is a significant advantage.
Interest rates on Interest Only Lifetime Mortgages are fixed for the entire term of the loan, and cannot change regardless of Bank of England interest rates. Bank of England interest rates are likely to increase in the future, but this policy of fixed interest rates keep clients protected from any future rises.
Once the rate is fixed, that is exactly how much you will pay until the end of the mortgage. This allows you to set aside the repayment amount each month and meet your interest repayment objectives more easily.
Both schemes will allow some form of equity release further advance. In Stonehaven’s case, they changed criteria recently by introducing the facility for a further two top-ups with NO valuation fee. This will be subject to lender criteria & loan-to-value ratios.
More2life are the only interest only lifetime mortgage company that operate a drawdown facility on their scheme. Given they only have one tiered rate of interest & hence loan-to-value, they will permit further borrowing upto the maximum equity release possible based on the original property value & age(s). The further drawdown’s are currently only available on a roll-up lifetime mortgage basis with more2life.
Stonehaven has a three month missed interest repayment policy whereby you can miss up to three monthly interest repayments and continue again as before. But missing more than three will mean that the mortgage is automatically switched to a roll up plan. Additionally, if not notified prior, Stonehaven with levy a charge in doing this, buy increasing the interest rate by 0.2%. more2life do not penalise you for this roll-over and will keep the interest rate the same. More2Life also has a no fee switching policy whereby the client is free to switch to a roll up mortgage at any time. Roll up lifetime mortgages have no monthly payments and the loan is repaid only when the mortgage ends and the property is sold.
Interest only lifetime mortgages are also flexible in that the monthly interest repayments are not obligatory. Clients can decide to switch to a roll up mortgage any time, without incurring penalties or fees. This means that your property cannot be repossessed even if you can no longer afford to make interest repayments.
This was one of the main disadvantages of the Halifax Retirement Home Plan. Given the generous lending criteria that this Halifax equity release scheme had, should interest rates rise then some customers could end up struggling with their repayments. Therefore, with interest only lifetime mortgage rates being fixed for life, those currently sitting on the Halifax scheme should consider looking at stabilising their future payments by considering a Halifax remortgage to either Stonehaven or more2life.
For a free remortgage assessment call freephone 0800 678 5159 where an independent equity release specialist can provide guidance.