Plans > Interest Only Lifetime Mortgage

Your guide to interest-only lifetime mortgages

Making interest payments will reduce the cost of releasing equity from your home

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What is an interest-only lifetime mortgage?

An interest-only lifetime mortgage is like a regular lifetime mortgage – a way to turn equity in your property into tax-free cash – except that it gives you the opportunity to make voluntary monthly interest payments on the loan. If you pay the full interest each month, the amount owed won’t increase over time, unlike standard lifetime mortgages where lenders add the interest to the loan.

For many people, avoiding interest building up is attractive as it protects more of their loved ones’ inheritance. With this form of equity release, there is potential for more of the property’s value to be available once the loan is repaid when you pass away or move into long-term care.

Equity Release Wise brings you access to the best quotes and deals through one of the UK’s largest and best-established lifetime mortgage specialists. You can check your eligibility here or talk to one of our friendly consultants by calling 0808 178 3055 or request a call back.

Did you know?

An interest-only plan is one of the most cost-effective forms of lifetime mortgage. As long as you make the agreed interest payments, you’ll avoid or reduce the effect of compound interest building up and adding to the loan amount.

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How does an interest-only lifetime mortgage work?

With an interest-only lifetime mortgage, you agree to make interest payments each month, usually at a fixed level. If you choose to pay the full interest and keep up with the payments, all that needs to be repaid when the house is sold at the end of the plan is the loan itself. You can instead choose to pay some of the interest, which will reduce the amount of interest payable at the end of the plan.

It differs from a regular lifetime mortgage, where you make no payments and the interest builds up over time as compound interest. At the end of these plans, the interest is paid back along with the capital amount borrowed when the house is sold.

There are flexible features in some interest-only plans that allow you to stop making the voluntary interest payments at any time. From that point on, the interest is ‘rolled up’ each month on a compound basis and added to the loan amount, in the same way as with a regular lifetime mortgage.

An interest-only lifetime mortgage shares many of the same features as a regular lifetime mortgage. They are both loans for people over 55 secured against your property and repaid through the sale of your home when you pass away or move into care. If it’s a joint loan, the house isn’t sold until both of you pass away or go into care.

As an extra reassurance, the interest-only lifetime mortgage providers we deal with support the Equity Release Council’s no-negative equity guarantee. This gives your beneficiaries protection as they won’t have to pay anything in the event that the future value of your property doesn’t cover the full amount due when the plan ends.

Read more: How does equity release work?

How much can I borrow on an interest-only lifetime mortgage?

The amount of cash you can release depends on factors such as the property’s location and value, and how much equity you have in it. You will be committing to make interest payments, so the lender may also check that your income is sufficient to pay the interest on the level of loan you are seeking. Your age is also taken into account: the older you are, the more you can borrow.

Each lender has different criteria, but maximum loan values range from 25% to 60% of the property value, with a minimum loan of £10,000 being typical. The Equity Release Council’s market statistics for 2021 showed an average release amount for new customers with a lifetime mortgage was just over £124,000.

You may also be eligible for an enhanced lifetime mortgage that enables you to borrow more money. These are available for some borrowers with certain health or lifestyle factors, including heart conditions, taking prescription medication and smoking.

To find out how much you could borrow, check here or talk to one of our friendly consultants by calling 0808 178 3055 or request a call back.

Read more: How much equity can I release?

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Am I eligible for an interest-only lifetime mortgage?

Each lender has their own criteria for an interest-only lifetime mortgage, but here are some examples of typical criteria as a guide:

  • You may need to show that you can afford to pay the agreed interest each month.
  • You must be a UK resident and aged 55 or over. If you apply as a couple, the youngest applicant on the deeds of the property must be 55 or above.
  • You must own your own home in the UK, typically with a value of £70,000 or more.

Check your eligibility

Call us on 0808 178 3055 and we’ll arrange a free, no-obligation appointment and interest-only lifetime mortgage advice* from a specialist who will confirm whether you are eligible. If you’re unable to talk now, request a call back and we’ll call when it’s convenient for you.

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Already have a lifetime mortgage? You could switch for a better deal

Now could be a good time to switch to a different lifetime mortgage. You may be able to release more tax-free cash due to being older than when you took out your existing plan. An increase in your property’s value or being in poorer health could also qualify you for further cash. Interest rate changes may also save thousands over the lifetime of your plan.

Why not arrange a free review to find out if switching works for you?

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Interest-only lifetime mortgage example

To explore how an interest-only lifetime mortgage works, let’s look at an illustrative example. A couple has some surplus retirement income, but not enough savings to meet their short-term financial needs. They want to help their son get onto the property ladder and carry out much-needed repairs to their home.

For this couple, an interest-only lifetime mortgage appeals. They are happy to use some of their retirement income to pay the interest on the loan to maximise the inheritance they will leave to their son and other family members. It also brings them the cash they need now to maintain their home for a comfortable retirement.

Is an interest-only lifetime mortgage right for me?

An ‘interest-only’ plan may appeal if you have enough surplus income to pay interest each month, and if leaving an inheritance is important to you. You may also like the flexibility that some lenders’ plans give you, such as:

  • Paying off more than the interest due each month, making payments of part of the loan capital itself. Some plans let you do this without an overpayment charge, up to certain limits.
  • Making partial interest payments each month rather than the total, with any unpaid interest added to the loan.
  • With some plans, you can stop paying interest at any time. From that point, the lender adds interest to the total loan on a compound basis, much like a regular lifetime mortgage. 

We strongly recommend that you take professional advice before deciding if this form of equity release is suitable for you. This is something we can arrange for you, by connecting you with one of our selected equity release advisers. Call us on 0808 178 3055 or request a call back at a time that suits you.

Which companies have interest-only lifetime mortgage products?

There are several UK interest-only lifetime mortgage providers. Talking to them all could be time consuming and inconvenient, and this is where Equity Release Wise comes in. We can arrange a comparison of suitable plans from top providers to ensure you have a choice of the best products for your circumstances.

Here are some of the leading interest-only lifetime mortgage providers the search will cover. All of them are authorised and regulated by the Financial Conduct Authority and are members of the Equity Release Council.

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Find out if you qualify for equity release and how much you could borrow. Just click ‘Get started’ or call us on 0808 178 3055 and one of our team will be delighted to help arrange a free consultation and quote*.

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Answering your questions

Still unsure of a few things? We’ve got you covered with answers to some of our most frequently asked questions.

  • What’s the difference between a regular lifetime mortgage and an interest-only lifetime mortgage?

      With an interest-only lifetime mortgage, you make monthly repayments to pay all or some of the interest to reduce or prevent compound interest building up.
      With a regular lifetime mortgage, you don’t pay any interest and it ‘rolls up’ over time. The interest and the loan itself are both paid by selling the property when you pass away or move into long-term care.

  • How is the interest rate calculated?

      Lenders calculate interest-only lifetime mortgage interest rates at the time you take out the loan, and they are usually fixed for life. You will find that interest-only lifetime mortgage interest rates tend to be higher than with other forms of mortgage, because a higher rate is a way that the lender manages the risk of future rate increases.

  • What costs are involved with an interest-only lifetime mortgage?

      Just as with a normal residential mortgage, you should be aware of costs involved in setting up an equity release lifetime mortgage. Your adviser will make sure you understand these in full before you decide whether to take out a plan, but below is a summary.

      Your lender will typically charge valuation, arrangement and completion fees, with further fees payable to the solicitor who acts for you. Some of these fees can be paid from the money you borrow, so you may not have to worry about finding them from your existing savings.

      Our selected advisers naturally charge an advice fee – but remember that any initial advice or information you receive from them is completely free and without obligation. You only pay them a fee if you apply AND your case completes.

      Once a plan is taken out, there aren’t normally any fees. One exception is an early repayment charge that some lenders request if some or all of your lifetime mortgage is paid off before you pass away or move into long-term care.

  • Are interest-only lifetime mortgages available in Scotland, Wales, Northern Ireland and England?

      Yes, interest-only lifetime mortgages and other forms of equity release are available across every country in the UK. When you contact Equity Release Wise, we will connect you with our carefully selected advisers who can help you find the best plan for your circumstances.

  • What are the potential risks of an interest-only lifetime mortgage?

      lifetime mortgage has worked for thousands of over 55s in need of tax-free cash. But it’s important to understand lifetime mortgage pros and cons before deciding if it’s right for you, so here are some potential risks you need to aware of:

      • When you take out your plan, you agree to make voluntary whole or partial monthly payments at an agreed level. If you later decide not to maintain these payments, there will be more to repay at the end of the plan.
      • Taking equity out of your home will reduce the inheritance you leave to loved ones.
      • If you give some of the money you release to loved ones as a gift, they may be liable to pay inheritance tax in the future.
      • You may have to pay an early repayment charge if you choose to pay back some of the loan early.
      • Borrowing money through a lifetime mortgage may affect your entitlement to some means-tested state benefits. During your appointment with one of our selected equity release advisers, they will help you establish the potential effect on your benefits.

Other types of equity release

Other forms of equity release may be more suitable for you. Read about these below, or talk about your options to one of our selected advisers so that you can find the best solution for you:

Product lump sum icon

Lump sum lifetime mortgage

Access a tax-free cash lump sum if you’re a homeowner aged 55 or over. You retain full ownership and can stay at home until you pass away or move into long-term care.

Read more about lump sum lifetime mortgage plans
Product drawdown icon

Drawdown lifetime mortgage

Instead of withdrawing the maximum amount available right away, you take an initial cash sum, then additional funds as and when you need them. This helps to reduce the total interest you pay.

Learn more about drawdown plans
Product enhanced icon

Enhanced lifetime mortgage

Certain health conditions or lifestyle factors could qualify you for higher cash releases or lower interest rates. A simple questionnaire is all that’s needed to check eligibility.

Read more about enhanced lifetime mortgage plans
Product second home icon

Second home lifetime mortgage

If you have a second home you may be able to secure a lifetime mortgage against it, or make your dream of a second home come true with a release from your main residence.

Read more about second home lifetime mortgage plans
Product buy to let icon

Buy-to-let lifetime mortgage

These specialist plans could enable you to release equity from a buy-to-let property, or to use the wealth in your home to help you make a buy-to-let investment.

Read more about buy-to-let lifetime mortgage plans
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Home reversion

A type of equity release where you sell all or part of your property at less than market value in return for a lump sum, a regular income, or both. You stay in your home rent-free.

Learn more about home reversion

Still have questions?

We hope this information has been useful. To find out more or arrange a consultation with an adviser, please call or request a call back and we’ll be happy to help further.

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+ Client testimonials refer to the service provided by our selected equity release advisers. We have changed the clients’ names and certain identifying information to protect their privacy.

Please note that equity release will involve a home reversion or a lifetime mortgage, which is secured against your property and will reduce the value of your estate and impact funding long-term care. To fully understand the features and risks, ask for a personalised illustration. Equity release requires paying off any existing mortgage. Any money released, plus accrued interest would be repaid upon death, or moving into long term care.