Interest only mortgages are an alternative to the standard Equity Release Plans where there are no monthly repayments. There is an option available to those clients who wish to make a repayment on their mortgage loan out of their retirement income. Interest only mortgages are available still from certain Lenders who will lend up to 75% loan to value of your property based on their lending conditions. To be able to borrow under these schemes all income will have to be disclosed and in the current climate a very good credit history is required.
Under Interest Only Mortgages you borrow a lump sum of money and based on the interest rate you make regular monthly repayments, therefore you are paying all the interest and the balance of the loan does not increase. The loan remains static and you pay back at the end of the term the original amount borrowed.
Interest Only Mortgages offer an alternative to Clients who can afford repayments and who wish to maximise the amount of inheritance they leave for their beneficiaries. These schemes however, do not come without risks, when considering Interest Only Mortgages as an option you need to carefully consider being able to continually make the repayment under the scheme. Generally these schemes do not allow you to miss payments as they are classed as arrears.
Thoughts on Interest Only Mortgages
Carefully consider whether you can afford the loan based on your joint income, what are the ramifications should one of you no longer be around due to death or long term care. Make sure you can always afford the loan repayments as the loan is secured against your home and failure to keep up with the repayments can result in having your home repossessed. Interest Only Mortgages come in a variety of options as normally all mortgage types are available e.g. fixed rates, variable rates, tracker and discounted rates etc. A Specialised Adviser can help you choose the option which is best for you but remember at the end of any initial fixed, tracker or discounted term your repayment may well increase.
For Interest Only Mortgages you may wish to cover the mortgage with Life cover. This can be arranged to repay the loan in full or in part on your death or if a couple when the first one of you dies. The main benefit is if you a couple on the death of your spouse the loan is repaid from the Life cover and the repayment will stop, allowing you to live if your income has been reduced by your loss. Life cover can be an expensive option based on your age and may not be available or maybe rated if you have/had ill health.
When looking and assessing your options, it is vital to speak to an Independent Specialist Adviser who can look at all the options available in the Whole Market Place to find the right option for you and who can look at all the rates currently available from all Providers of Life cover to find the cheapest quote available for you.