For some people, they know that converting to a lifetime mortgage or retirement mortgage may be inevitable in the future so what they require is the option to pay monthly interest on an Interest Only mortgage before this converts to a Lifetime Mortgage. This will then reduce what interest is owed at the end of the plan and leave more to family and loved ones.
STARTING OFF AS AN INTEREST ONLY MORTGAGE WITH AN OPTION TO STOP PAYMENTS COULD BE AN IDEAL SOLUTION FOR MANY PEOPLE.
Interest Only Lifetime Mortgage (Retirement/Pensioner Mortgage)
If you can afford to maintain your current monthly payments on an Interest Only basis, but are unable to get a high street mortgage due to your age or income then this may be for you.
Benefits – You remain 100% owners of your home. You can choose how much you want to pay and for how long without putting your property at risk. If you pay the full amount of interest each month, the amount you owe against the property will never increase.
If your circumstances change and the interest payments become unaffordable, they can be stopped at any time.
The interest rate when you take out the plan is fixed for the rest of your life. This means that your payments will never increase.
With this type of plan you can even choose to have more money available for releasing in the future, this is known as a draw down or reserve plan.
Disadvantages - The amount available depends on the age of the youngest borrowers. Any monthly interest not paid will be added on to the amount owed and will 'roll-up' against the value of your property.
Roll-Up Lifetime Mortgage (Reverse Mortgage)
You can take an initial amount of money and create your self a reserve to use at any point in the future, or take a bigger lump sum now.
Benefits - You remain 100% owners of your home. There is no need to make any monthly payments at all. Instead, interest 'rolls-up' and only needs to be repaid when you have both died or gone into long term care.
You can even set up a facility to take out more cash as and when you wish in the future, this is known as a reserve.
You can guarantee an inheritance is left behind from the property if you wish and your mortgage will never exceed the value of your property as this is protected under the 'no negative equity guarantee'.
Disadvantages - The amount of equity left will depend on the value of your property when the mortgage ends minus what you have borrowed (including interest).
Home Reversion Plan
You give up the ownership rights of the property, but are guaranteed to live in your property for the rest of your life. You can give up part of the property or all of it depending on your circumstances.
Benefits – This will allow you to draw on a lump sum. It can also guarantee a % of the property is left to estate.
Disadvantages - It is very expensive if you ever wish to buy back your property. You are not the beneficial owner of the property. The money received for the % of property sold is not directly related to the market value.
WE CONSIDER HOME REVERSION TO BE A DRASTIC COURSE OF ACTION AND POOR VALUE FOR MONEY IN MOST CIRCUMSTANCES SO WE DO NOT ADVISE ON SUCH PRODUCTS.
Retirement Interest Only (RIO) Mortgage
RIO mortgages are effectively standard home loan deals with one key difference: the mortgage does not have a set end date and carries on until “a specified life event” is triggered – ie, the borrower’s death or the date they move into a care home. Until then, they continue to pay the interest each month and the loan is ultimately repaid from the sale of their property.
This seems great, but we are finding in reality that at this moment in time the number of people that actually get accepted for these mortgages is actually very low.