Are you retired and longing to go on that dream holiday but just do not have sufficient funds to finance it? Would you like to purchase expensive gifts for your children and grandchildren? Does your home need improvements? These and many more can be financed with an interest only mortgage. Interest only loans are one of the most common equity release schemes. It allows homeowners to obtain a loan against their property. It is a cheaper alternative to the capital and repayment mortgage in that only the interest is paid. The capital loan amount is not repaid during the lifetime of the homeowner.
Explanation of Interest Only Lifetime Mortgage
The capital loan amount is normally repaid after the borrower and his partner both die or no longer choose to continue living in the property. The property is then sold and the sales proceeds are used to repay the London home equity loan. In order to qualify for interest only lifetime mortgages, a homeowner needs to prove that he will be able to pay the monthly interest amount. Ideally, this is repaid via an alternative savings vehicle such as an ISA or endowment plan.
Advantages of the Plans
The advantage of interest only lifetime mortgages is that the capital loan amount will not increase. So the amount that is borrowed is what will have to be repaid once the mortgage term ends. Once the mortgage term ends, the interest which would have built up and added to the capital loan amount would have been paid off leaving only the capital loan amount to be paid.
Some claim that an interest only lifetime mortgage can be misleading in comparison to capital and repayment mortgages. The repayment of the capital amount and the interest amount is spread into even monthly payments over the course of the duration of the mortgage with repayment and capital mortgages. This means that once the mortgage term ends, the mortgage is guaranteed to be paid off.
With interest only lifetime mortgages, the capital loan amount is still outstanding once the mortgage term ends. The fact is that none of the amount originally borrowed is paid back. This however is not an issue to many homeowners since they will either be dead or no longer living in the property. So no, interest only mortgage is not misleading.
Confusion over Lifetime Mortgages Too
When you examine details regarding lifetime mortgages it can seem a bit overwhelming; especially, if you are not well versed in mortgage products to begin with. If you took out a 30 year fixed mortgage to purchase your home without looking at other options there is certain the potential to be confused or mislead as you take a look at retirement products.
All lifetime mortgages including the interest only product will have disadvantages. The principle amount is still going to remain even though you are making payments. Standard interest only mortgages require a balloon payment at the end of a ten year mortgage in which the interest is only paid during the 10 year period. Lifetime mortgages work differently since the borrower has a lifetime to pay back the original balance.
As long as interest payments can be made there is no issue with repaying the loan at the end of one's lifetime or move to a new location. The only misleading part some have with lifetime mortgages is that the house may not be sold. In most instances the house has to be sold to repay the balance of the loan. Any equity remaining in the home that is not owed as part of the interest only mortgage is inheritance for your family.
If the housing devalued and the principle loan amount is the same as the property is sold for then inheritance can be lost. So as long as borrowers remember that the property is probably not going to be left in the family and any equity not used is given as inheritance there is little to be misled about.
Saving the Home from Sale
Not all families need to sell their mortgaged home after retirees die or move out. It is based on the family circumstance and whether the family is willing or able to pay back the principle loan amount versus selling the home to pay off the mortgage. In most cases with an interest only mortgage for retirees the remaining family does not have enough savings to protect the home from sale and would rather take the remaining equity as a cash inheritance.