Home Equity release Interest-payment lifetime mortgage

Interest-payment lifetime mortgage

Find out how you could save thousands in interest by making monthly payments. We'll explain the benefits, drawbacks, and costs to help you make an informed decision.

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What is an interest-payment lifetime mortgage?

An interest-payment lifetime mortgage is a type of equity release which is a loan secured against your home. It could help you unlock some of your property's value.

It's different to a lifetime mortgage with voluntary payments as when you release cash through an interest-payment lifetime mortgage, you agree to make monthly interest payments of between £25–100% of the interest added to your loan each month to help reduce your total cost of borrowing.

If you’re able to make full interest payments for the life of your plan, it’ll leave you with only the amount borrowed to pay at the end. An interest-payment lifetime mortgage isn’t subject to affordability tests, however, agreed payments must be sustainable as there may be a penalty for stopping payments early.

 

How an interest-payment lifetime mortgage could work for you

 

ⓘ Case study example

How Margret saved over £116,000 by choosing an interest-payment lifetime mortgage

Margret is a 71-year-old divorced retiree looking to release £100,000 from her £600,000 property to gift money to her grandchildren. She commits to paying 100% of the monthly interest for 10 years.

By making monthly interest payments for 10 years, Margret can save more than £116,000 over 20 years compared to making no repayments.
 

 

  Lifetime
mortgage   		 Interest-payment
lifetime mortgage
Initial loan amount £100,000 £100,000
Interest rate 6.5% MER* 6.2% MER*
Monthly payments £0 £532 (for 10 years)
(100% of the monthly interest)
Total cost of borrowing after 20 years       £365,645 £249,436 (inc.payments)
Net saving £0 £116,209


*Monthly Equivalent Rate. Interest rates, monthly payments and savings amounts are for illustrative purposes only. Interest rate received and plan features are subject to eligibility. Ask your adviser for a personalised quote.

Lifetime mortgage benefits

Your specialist equity release adviser will explain:

  • You can unlock cash from your home, tax-free, to help meet your needs in later life
  • You’ll always retain full ownership of your home and can stay in it for as long as you wish
  • You can choose to make reduced or no monthly repayments to suit your circumstances
  • You’ll never owe more than your home’s worth
  • You may be able to remortgage your plan in the future to release further funds or secure a better interest rate, although this isn’t guaranteed and may be subject to early repayment charges

Drawbacks

Your equity release adviser will also outline the following important things to think about:

  • A lifetime mortgage is a loan secured against your home and subject to compound interest, meaning the amount you owe can grow quickly
  • Equity release will reduce your financial options in the future
  • Equity release will reduce the value of your estate and may affect your entitlement to means-tested benefits
  • Equity release may leave you with limited or no property equity remaining
  • A lifetime mortgage is a long-term financial product and is not designed to be fully repaid until the death or entry into long-term care of the last remaining borrower, otherwise early repayment charges may apply

Your other options

It's important you're aware of your other later life finance options, which may include:

Retirement interest-only mortgage
Retirement repayment mortgage
Home reversion plans

Equity release costs

Knowing the costs associated with equity release and how to help manage them is important.

Compound interest explained
Lump sum vs drawdown lifetime mortgage
What does equity release cost?

Other options we don't offer

  • Downsizing
  • Unsecured lending
  • Using existing assets
  • Support from friends or family

Ready to see if an interest-payment lifetime mortgage is right for you?

Remember, you must get advice before you take out any equity release product. If you want to do some more of your own reading, our equity release guide is free to download and can provide you with more information.

So, if you’re ready to start exploring your options, our friendly and experienced team can be reached via our quick contact form or on 0800 188 4812 Lines are open Monday-Friday 9am-5.30pm. 

We have no ties to any providers, so you’re always guaranteed, honest, independent advice that’s straightforward and tailored to you – nothing else. We'll always tell you if equity release isn't right for you, and we offer a full range of later life options, so we can see if there is another product more suitable for your needs.

Unless you decide to go ahead, our service is completely free of charge as our fixed advice fee of £1,799 is only be payable on completion of a plan.

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