Well if one wishes to retain their home, an urgent review of their interest only mortgage would be the key. Interest only mortgage customers have two main options which are an equity release to clear the mortgage; however, there is the disadvantage of the interest roll-up scenario and ever increasing mortgage balance. The better alternative if one wishes to maintain a UK interest only mortgage is to look at lifetime mortgages with an interest only option.
Who can provide an interest only lifetime mortgage?
These are provided by the likes of Halifax with their Halifax Retirement Home Plan which is only available via selective authorised brokers such as Equity Release Supermarket. The branch network has had their lifetime mortgage licences revoked some time ago hence they are unable to offer advice or products themselves. Therefore FCA authorised brokers such as Equity Release Supermarket who have the CeRER and CeMap qualifications can provide best advice for your requirements.
Affordability is based on retirement income alone, hence there is no acceptance of any employment, self-employment or investment income. The Halifax Retirement Home Plan has an interest only mortgage calculator provided to authorised brokers such as Equity Release Supermarket who can then calculate how much can be borrowed.
The second option is the Stonehaven Interest Select product which is a hybrid equity release scheme with the option to make a ‘contribution’ towards the interest. This contribution can either be a minimum of £25pm or the full interest that is charged on a monthly basis. Therefore, you have the option to either completely repay the interest and maintain the balance at the same level; or make a payment that meets one’s affordability levels with an element of roll-up, albeit lower compares to complete roll-up equity release schemes.
The Stonehaven Interest Select plan measures borrowing capacity on the same basis as its equity release counterparts; namely on the age of the youngest applicant and the valuation of the property.
Difference between Halifax and Stonehaven
The difference between the Halifax Retirement Home Plan and the Stonehaven Interest Select plan would be down to early repayment charges and the interest only interest rate.
Alternatives on the Market
By no means are the two companies mentioned the only FCA approved companies providing lifetime mortgage products. They are currently the main companies offering interest only products; however, it is best to realise other options exist.
Lifetime mortgages do come in a variety of forms. The interest only product certainly protects inheritance for beneficiaries and it does limit the amount of repayment required. Yet, if you do not qualify or do not wish to use your income for interest repayments you could research roll up and drawdown lifetime mortgages.
Roll up equity release is a lump sum payment to retirees. Based on the value of the property and age of the homeowner (at least 55 years of age is required), the capital sum is devised. Interest is calculated based on current rates in the market. The interest is often fixed so you know exact costs of the mortgage based on life expectancy. In other words, if you life 20 more years, 30 years, or 40 more years, you would know what to expect for the interest compounded onto the capital sum. The sum and interest is repaid at death or move to a new residence. If you move to a new house or downsize the mortgage can come with you, it is only when you move to a retirement community or no longer own property that you are required to repay the mortgage.
Drawdown methods work with a facility or equity account. The account contains the equity released based on the same roll up factors. The difference is the compounded interest. Interest adds up on the funds you use rather than the entire amount provided in the equity account. If you do not use all the funds it is assumed as equity in the property and thus it does not have interest associated with it.
Drawdown options can leave more inheritance for family members than roll up. It is also a potential option if inheritance is important to you and interest only products do not suffice.
Inheritance Guarantees do Exist
For lifetime mortgages, where inheritance might be used up, you can decide to use an inheritance guarantee clause which protects against the full use of your home equity in a lifetime mortgage. A section is kept out as funds to give to your beneficiaries after the sale of the house.
Contact a specialist such as Equity Release Supermarket on their freephone number 0800 678 5159 to get the latest interest only mortgage rates and special deals they offer.