What Can You Spend the Proceeds of an Interest Only lifetime Mortgage On?September 25th, 2013
There is usually an upside and a downside to almost everything and this is also true in the case of financial schemes and mortgages. Whether a particular mortgage suits you or not depends more on your individual needs and state of affairs, than solely on the terms of the mortgage. An interest only lifetime mortgage may be suitable for some retirees and may not work for others. Here is how an interest only lifetime mortgage like the Stonehaven Interest Select Plan works.
The balance on an interest only lifetime mortgage remains the same until the end of the mortgage term, as the interest is repaid with monthly payments. Knowing exactly how much the balance will be can be a good thing for those who want to protect their estate from erosion. Knowing what the end balance will be is useful for estate planning. For instance, children or beneficiaries themselves could help make monthly payments on their parent’s behalf in order to protect their own inheritance.
As you retain 100% ownership of the property you will also benefit from any increase in the value of the house. Currently lenders do not consider income as a lending criterion with an interest only lifetime mortgage. Therefore, proof of income is not required: whether it is employment income or pension income. The age of the youngest applicant and the value of the property are used to calculate how much can be borrowed.
An interest only lifetime mortgage can be useful for those who reach retirement age with a significant outstanding balance on their mortgage. They have considered the option of downsizing but have decided against it. They have insufficient savings and no alternative way to repay it. Research findings show that an increasing number of people with interest only mortgages are arriving at retirement and left with no way to repay the loan. Switching to an interest only lifetime mortgage could be an option as the money released could be used to pay off the existing mortgage. Interest can be paid monthly without ever having to repay the capital sum on the mortgage.
To come to the question about what proceeds from an interest only lifetime mortgage can be used for, the answer is that it could be used for absolutely anything! Lenders do not insist on particular uses, nor do they need to know what the funds are used for. The only lending criteria currently in place for Interest only lifetime mortgages such as Stonehaven Interest Select or the discontinued Halifax Retirement Home Plan are the age of the youngest applicant and the valuation of the property. The mortgage allows you to release cash free funds and use them towards any expenses necessary. Popular choices seem to be home improvements, holidays, debt consolidation and more commonly gifting to the children in their hour of need during the current economic crisis.