How Does an Interest Only Lifetime Mortgage Work
An interest only lifetime mortgage lets you borrow against your home and pay the interest each month, so the amount you owe stays the same. The loan is repaid when you die or move into long-term care, usually from the sale of the property. Because you pay the interest, the debt does not compound, which protects the equity left for your family.
The monthly payment is simple: loan multiplied by the annual rate, divided by 12. A £100,000 loan at 6% costs £500 a month. If your income can cover that comfortably, the interest-only version preserves far more equity than a roll-up deal, where the same loan grows to about £179,000 after ten years.
The risk is affordability over time. If your income falls, or rates rise on a variable deal, the payment can become harder. Some products let you pay part of the interest or pause payments, but any unpaid interest is added to the loan. Independent advice is important, because equity release affects inheritance and can affect means-tested benefits.
- You pay the interest monthly; the balance stays the same.
- Loan repaid on death or move into long-term care, usually from sale.
- Preserves more equity than a roll-up deal, but needs affordable payments.
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