Is the Interest Only Lifetime Mortgage the Best Type of Equity Release Scheme?
For many people considering equity release schemes, an interest only lifetime mortgage may seem to be the best type of product. However, it is not automatically the best possible scheme to suit your needs. The best possible deal should be the one which is most appropriate to your circumstances and needs.
The Difference Between a Roll up and Interest Only Lifetime Mortgage
The primary difference between a roll up and an interest only lifetime mortgage is that the customers are allowed to make monthly interest payments on an interest only lifetime mortgage. This option allows partial or full amounts of interest to be paid each month rather than allowing the interest to roll up for the remainder of the term. This would obviously be subject to affordability but it works in much the same way as a conventional lifetime mortgage with the exception that on completion, the provider will start to collect a monthly interest payment. This type of scheme can still allow you to release the capital from your home and use it as a tax free lump sum to spend as you please.
The Advantage of an Interest Only Lifetime Mortgage
The main advantage of this type of scheme is that the balance on the equity release loan remains constant. The principle amount is only repaid to your lender when the property is sold. This is usually if you pass away or move in to a long term care facility. This allows the provision for a smaller loan to be secured on the property meaning that equity can be protected for your beneficiaries. There are a number of companies which offer a number of interest only lifetime mortgage products including Stonehaven, Hodge Lifetime and More2life. Many of these schemes allow for full or partial interest payments. If you choose to make a partial interest payment, the remaining interest will be compounded onto the balance of the loan.
The Advantage of a Roll up Lifetime Mortgage
This type of scheme remains one of the most popular since it allows a capital lump sum to be received without any impact on monthly expenditure. With this type of product, the interest is added on to the principle loan and compounded monthly or annually. This can provide an opportunity for home owners to receive a lump sum or additional income without incurring any monthly costs. However, it can significantly reduce the amount of inheritance left to your beneficiaries.
Which is Best?
The choice of equity release scheme which is best for you will depend on your current financial situation and your attitude to risk. You should think about whether you could comfortably afford interest payments on a monthly basis. The main issue to consider is whether you wish to protect the inheritance you can leave to your beneficiaries and if you have enough disposable income available to make interest payments. This can be a difficult decision for some and your equity release advisor will be able to assess your situation and provide additional information which may assist your decision.
There are a number of schemes which offer flexibility regarding the interest payments and may provide the best type of equity release scheme for you. It is worth taking the time to assess your financial situation and discussing your plans with your beneficiaries. This type of decision can have a long term impact on you and your beneficiaries, so it is important to understand the consequences of choosing a roll up or an interest only lifetime mortgage. If you are concerned about which scheme would be best suited to your needs, you should consult with your equity release advisor for further guidance.