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Interest only lifetime mortgages

The key information you need to know about lifetime interest only mortgages.

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By Pete Mugleston   Mortgage Advisor

Last updated: 12th April 2019 *

We get lots of enquiries from people who want to know more about interest only lifetime mortgages and how much they can borrow against their home.

There are a range of lenders who offer lifetime interest only mortgages and each one has varying criteria which they’ll use to assess your application. Luckily, we work with expert advisors who are trained to find lenders who are more likely to approve you, as well as find you the best possible interest only lifetime mortgage rates.

We have gathered all the key information you’ll need to know about interest only lifetime mortgages and you’ll find the following topics covered below...

You might also be interested in our standalone guide to interest only mortgages and our article dedicated to lifetime mortgages.

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What is an interest only lifetime mortgage?

An interest only lifetime mortgage is a type of loan that is secured against your home that allows you to release equity from your property. Like a standard interest only mortgage, the borrower will be expected to pay the interest of the loan on a monthly basis, which ensures that the balance of the loan remains level.

The remaining balance is usually paid back when you die or move into long-term care from the sale of your property. If there is any money left over after paying your loan, this is inherited by your beneficiaries.

Eligibility for interest only lifetime mortgage schemes

To ensure you are eligible and can afford to take out an interest only lifetime mortgage, lenders will carry out checks which may involve looking at:

  • 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
  • Where your property is - it must be in the UK
  • Credit history - this may affect how lenders judge your ability to pay the interest

Before making an application for an interest only lifetime mortgage, you should talk to an expert who can look at your circumstances and compare the best interest only lifetime mortgages for you.

Interest only lifetime mortgage interest rates

The interest rates on an interest only lifetime mortgage are fixed and are charged based on the full loan amount.

This type of loan allows you to pay off the interest of your loan monthly without paying back the loan itself until the end of the term.

If you do wish to pay back some of your loan, there may be penalty fees so always check the terms and conditions of your loan agreement before proceeding.

Furthermore, if you are considering leaving inheritance to your beneficiaries, be mindful that your interest payments as well as the cost of the loan itself will reduce the overall amount that you can leave to them.

Interest only lifetime tracker mortgages

You may have also heard of an interest only lifetime tracker mortgage. This type of mortgage is similar to an interest only retirement mortgage but the big difference is that rather than paying a fixed amount of interest, the amount of interest you pay can fluctuate (usually based on the Bank of England’s base rate.)

This means that if their base rate goes up, so will the amount of interest you pay on your tracker mortgage deal.

How much could you borrow with an interest only lifetime mortgage

Most lenders will consider a maximum loan to value (LTV) ratio of 40-50%, although some can consider up to 55-60% in certain circumstances. Every lender is different when it comes to how much they will lend but the amount of equity you can release is usually based on your age, health, income and the market value of your property.

Age

Lenders will look at your age to calculate the amount of equity you can release and would usually offer a higher LTV if you are older.

Health

Lenders will also consider your health when assessing your application, and for any cases where health issues are a factor, a doctor’s report will be requested to provide evidence of the illness or condition. This is because most lenders are willing to increase the LTV for homeowners with serious health issues as they are perceived to have a shorter life expectancy.

Income

A lender will want to be confident that the loan is affordable to you based on your income during retirement. Loans are generally capped at 4.5x income, although some lenders may consider loaning 5x your income (or more) in the right circumstances.

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 each month.

Property Value

When you apply for a lifetime mortgages interest only 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, the more favourable the LTV.

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

Interest only retirement mortgage calculator

Many homeowners use online mortgage calculators to get a better understanding of how much they can borrow when taking out an interest only retirement mortgage in the UK. These can provide a brief estimation, however, 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 retirement mortgage lenders.

Are there any other alternatives to an interest only lifetime mortgage?

There are alternative options that may be available to you depending on your circumstances and these and may also work out more cost efficient or provide more flexibility. These can include:

Home reversion plans

You 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. The experts we work with would be happy to discuss these with you if you make an enquiry.

Hybrid Equity Release

There are lenders who now offer a hybrid of equity release and an interest only retirement mortgage (RIO). This option would allow you to pay some or all of the interest monthly, but it would also give you the freedom to stop paying whenever you like and just add the interest onto your loan.

Similarly to standard equity release and an interest only retirement mortgage, the remaining balance of the loan is paid off in the event of your death or your move into residential care, from the sale of your home.

Why you should speak to an expert interest only lifetime mortgage broker

Here at OMA, we take pride in providing a 5-star service with access to expert advisors who are...

  • Whole of market brokers
  • OMA Accredited
  • LIBF Training course qualified
  • Experts on interest only lifetime mortgages and able to offer bespoke advice on them
  • Known to have working relationships with specialist interest only lifetime mortgage lenders and know which ones to approach for the best rates

Speak to an expert about interest only lifetime mortgages

If you have questions and want to speak to an expert for the right advice, call Online Mortgage Advisor today on 0800 304 7880 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.

Updated: 12th April 2019
OnlineMortgageAdvisor 2019 ©

FCA disclaimer

*Based on our research, the content contained in this article is accurate as of 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 info 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.

Find out more about how we help people with lifetime mortgages

Lifetime Mortgages