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Interest Only Equity Release

Interested in equity release for interest only mortgage borrowers? Get the right advice here.

No impact on credit score

Pete Mugleston

Author: Pete Mugleston - Mortgage Advisor, MD

Updated: August 24, 2021

We have helped lots of homeowners who have considered interest only equity release.

Many people come to us confused about when they have to pay back the interest of the loan and how the remaining balance is paid off.

The good news is that we work with specialist advisors who have extensive experience with interest only equity release as well as the other options that may be more suitable for your needs and circumstances.

Applying for an interest-only loan is a big decision, so you’ll want to know the pros, cons and how exactly it could affect your finances.

If you’re looking for advice and want to speak to a specialist today, contact us here and we’ll be happy to help.

What is interest only equity release?

An interest only lifetime mortgage is a loan that is secured against your home. Depending on many factors including your property’s value, your age and income, you could release a cash lump sum by taking out one of these products.

When you apply for an interest only equity release scheme, the lender will arrange for your house to be valued and will also want to know how much equity you currently hold in the property. Usually the more equity you own, the higher the loan to value (LTV) ratio.

Some people use the money for home improvements, to settle debts or to go travelling, whilst others use it to help a loved one onto the property ladder.

Using the funds to consolidate debts

If you’re planning to repay debts with the money released from your home, you need to calculate how much you will pay in interest for your equity release mortgage versus how much the debts cost to repay monthly.

It may be the case that paying back debts over a longer period could mean you pay more overall, so equity release could potentially save you money. That being said, your interest payments for your mortgage could also equate to more so before applying, speak to a specialist who can calculate this for you.

Equity release with interest payments: When do you actually make them?

Unlike other forms of equity release, an interest only loan allows you to pay back the interest on a monthly basis, which ensures that the balance of the loan remains level.

Some homeowners like this, as when the loan is due to be repaid, the remaining balance is lower than had they chosen to ‘rolled up’ the interest and they can still leave inheritance to their loved ones.

When and how do you pay back the loan?

The remaining balance is paid back when you die or move into long-term care. Your house will be valued by an independent surveyor (in case the property value has increased or decreased) and will then be sold.

The proceeds of the sale will be used to clear your interest only mortgage and anything left is given to you or inherited by your beneficiaries.

Are you eligible for interest only equity release?

When a lender assesses your eligibility, they will ask questions regarding::

  • Your health – this can affect the amount you can borrow
  • Your age – you must be aged 55 and over
  • Your income – this could be from a job, pensions or savings
  • The property value – it should be worth a minimum of £70,000
  • The type of property you live in – lenders prefer standard construction properties
  • Where your property is – it must be in the UK
  • Your credit history – Having bad credit could affect how lenders judge your ability to repay your interest payments with a bad credit mortgage.

Before making an application, it can be helpful to talk to an expert. They can look at your circumstances and compare the best equity release interest payment plans for you.

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Pros and cons of interest only equity release

Pros Cons
Unlike conventional mortgages, the interest rate for lifetime mortgages can be fixed for the duration of the plan Releasing equity can affect your entitlement to certain benefits
If your circumstances change, you have the option to switch to a lifetime mortgage not requiring repayments. Instead the interest is ‘rolled up’ (a higher rate of interest may apply) After paying back your initial loan plus ‘rolled up’ interest from the sale of your home, you may be left with considerably less money than initially predicted. Plus, if your home decreases in value, the situation could be much worse.
Some products will allow you to release more equity in the future Releasing equity from your property will decrease the amount of inheritance you might leave
You will still keep full ownership of your home

How much could you borrow?

Your lender may take your pension, benefits and any savings you have to determine what your income is and how much interest you can afford to pay back each month.

If you’d like a quote for an interest only equity release mortgage or want to know more about how lenders will assess your affordability, contact a specialist here.

Can you use your retirement income to pay back the interest?

Yes. If paying back the interest on your loan is affordable using your pension or other forms of retirement income then this may be a possibility for you.

If so, it might be worth considering a retirement interest only mortgage or even a standard mortgage

Should you use an interest only equity release calculator?

If you’d like to know how much you can borrow against your property, you might be tempted to use an online equity release calculator. These can provide a brief estimation, but  they won’t be able to give you an exact figure.

This is because every lender uses different criteria when they calculate how much they are willing to lend to you and some lenders are more lenient when considering applications from homeowners with more exceptional circumstances i.e. bad credit or a non-standard property.

For a more accurate figure, it’s best to talk to an advisor who has specific experience and knowledge about interest only equity release lenders.

Are there any other alternatives?

Yes. Depending on your circumstances other options may work out more cost efficient or provide more flexibility for you.

These can include:

Lifetime mortgage

This involves borrowing money that is secured against your home. You still remain the owner of the property and the loan and interest is paid back from the sale of your home when you die or move into residential care.

Home reversion plan

This option allows you to raise money by selling a share or in some cases, all of your home. You are still able to live in the property until you die or move into residential care.

Hybrid equity release

This option would allow you to pay some or all of the interest of the loan monthly, however you also have the freedom to stop paying whenever you like and just add the interest onto your loan.


Simply remortgaging a property you own and hold equity in could unlock that capital and provide an alternative to equity release. Perhaps you need the funds for home improvement, to buy another property, or want to remortgage for debt consolidation purposes? Either way, be sure to speak to an expert before deciding whether this is a better option than equity release.

How do I get the best rates on an interest only equity release mortgage?

To find the best equity release interest only plan, it’s best to speak to a specialist who knows which lenders offer the lowest equity release interest only rates.

Here at Online Mortgage Advisor, we strictly only work with brokers who can prove they have the knowledge and expertise to find you the most suitable mortgage for you. We take pride in providing a 5-star service with access to expert advisors who are:

  • Whole-of-market brokers with access to all equity release providers
  • OMA Accredited
  • LIBF Training course-qualified
  • Experts on equity release and lifetime mortgages

Can I use equity release to pay off an interest-only mortgage?

Yes! Some borrowers have found that switching to an equity release product is a viable option for paying off an interest-only mortgage at the end of the term.

This would usually only be done if the repayment vehicle agreed in advance with the lender has underperformed.

Since releasing equity from a property for any purpose should not be done lightly, so you should seek specialist advice before proceeding.

Speak to interest only equity release mortgage expert

If you have questions about interest only equity release schemes and want to speak to an expert for the right advice, call Online Mortgage Advisor today on 0808 189 2301 or make an enquiry here.

Then sit back and let us do all the hard work in finding the broker with the right expertise for your circumstances. We don’t charge a fee and there’s absolutely no obligation or marks on your credit rating.

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About the author

Pete, an expert in all things mortgages, cut his teeth right in the middle of the credit crunch. With plenty of people needing help and few mortgage providers lending, Pete found great success in going the extra mile to find mortgages for people whom many others considered lost causes. The experience he gained, coupled with his love of helping people reach their goals, led him to establish Online Mortgage Advisor, with one clear vision – to help as many customers as possible get the right advice, regardless of need or background.

Pete’s presence in the industry as the ‘go-to’ for specialist finance continues to grow, and he is regularly cited in and writes for both local and national press, as well as trade publications, with a regular column in Mortgage Introducer and being the exclusive mortgage expert for LOVEMoney. Pete also writes for OMA of course!

Read more about Pete

Pete Mugleston

Mortgage Advisor, MD

FCA disclaimer

*Based on our research, the content contained in this article is accurate as of the most recent time of writing. Lender criteria and policies change regularly so speak to one of the advisors we work with to confirm the most accurate up to date information. The information on the site is not tailored advice to each individual reader, and as such does not constitute financial advice. All advisors working with us are fully qualified to provide mortgage advice and work only for firms who are authorised and regulated by the Financial Conduct Authority. They will offer any advice specific to you and your needs.

Some types of buy to let mortgages are not regulated by the FCA. Think carefully before securing other debts against your home. As a mortgage is secured against your home, it may be repossessed if you do not keep up with repayments on your mortgage. Equity released from your home will also be secured against it.

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