Is the Inheritance Protection Option Still Required on an Interest Only Lifetime Mortgage Plan?September 25th, 2013
A lifetime mortgage is a type of equity release mortgage which can go on until the end of life. An interest only lifetime mortgage is a type of lifetime mortgage, where you have the option of making full monthly interest repayments. Interest only lifetime mortgages have proved to be very successful since they were first introduced in the equity release market. This is because they offer exceptional flexibility and control over their repayment.
There are currently two equity release providers offering interest only lifetime mortgages – Stonehaven and more2Life. Stonehaven’s Interest Select Plan is a flexible lifetime mortgage available to over 55’s. The plan is available in four tiered categories each with a different interest rate and offering a different level of release. The four categories are the Interest Select Lite which has the lowest interest rate of 5.99%, Interest Select, Interest Select Plus and Interest Select Max which offers the highest potential release.
More2Life also offers an interest only lifetime mortgage – the Interest Choice Plan. This is also available to over 55’s and monthly repayments of a minimum of £25 and maximum full interest amount can be made each month on both interest only lifetime mortgages.
A common concern that people have with roll-up equity release plans is that the loan could potentially erode a large proportion, or all of the equity in the property and leave nothing for their beneficiaries. This is why some equity release plans offer an inheritance protection option which allows clients to protect a certain amount of guaranteed equity for their beneficiaries.
With interest only lifetime mortgages, clients are free to make monthly repayments of interest and by making full and regular interest payments, clients can potentially ensure that the end balance on the mortgage remains exactly the same as the start balance. This way, clients can have full control on the equity and know exactly how much their beneficiaries will receive at the end of the mortgage term.
An interest only lifetime mortgage plan therefore structurally has an indirect form of inheritance protection built in to it. A build-up of interest and compounding interest are often the reasons why debts grow beyond control and beyond proportion. However, by offering control over interest repayment interest only lifetime mortgages allow for inheritance protection.
Having said this, it is also important to know that interest only lifetime mortgages do offer additional inheritance protection. An Interest only mortgage can be switched to a roll up mortgage at any time. More than three missed interest payments on Stonehaven’s Interest Select Plan will automatically switch the plan to roll up. Having inheritance protection in such a situation will allow you to protect equity for your beneficiaries.