If you’ve heard people talking about releasing equity from their property while making sure some inheritance is protected, they could well have been discussing an interest only lifetime mortgage or equity release plan.
Here, we’ll aim to give you detailed explanation of how an interest only plan would work, answer some frequently asked questions and lay out what to do if you’d like to discuss this type of equity release in a bit more detail.
What is an Interest Only Plan?
An interest only lifetime mortgage is very similar to a lump sum equity release – but with the notable difference that a monthly payment becomes due from the homeowners.
So, as with a lump sum agreement, a valuation of the property is obtained – along with some details about your personal circumstances, including age and finances currently attached to your home. Based on this information, an amount of equity that could be released is calculated.
Your chosen amount of money is released – but, unlike a lump sum plan, the interest on this amount does not accrue or ‘roll up’; instead, you pay it off each month. By doing so, you can maximise the amount of money released – or ensure there’s the potential for a larger amount of equity in your property that can be left in your estate for inheritance purposes.
Benefits of an Interest Only Plan
If you’re familiar with mortgage interest rates you’re probably aware that they can be subject to large fluctuations based on interest rates elsewhere. The good news is, with an interest only lifetime mortgage this isn’t the case – so affordability and your personal budget won’t be impacted into the future, regardless of bank interest rates.
As we’ve previously mentioned, paying the interest on this type of equity release product helps to maximise the amount that you can borrow – or will be left as equity in your property upon your passing – meaning any inheritance you’ve earmarked for loved ones is also maximised.
Of course, as with all lifetime mortgage plans, you retain ownership of your property and have a fully protected right to stay there for the rest of your life. What’s more, your wider estate is kept completely safe – as a lifetime mortgage is fully settled by your property upon death or moving into full time residential care. Even if there’s a shortfall owing to property prices, that is firmly the problem of the lender – not yours or your family’s.