One feature that distinguishes many Lifetime Mortgages from standard residential mortgages is that mandatory monthly repayments may not be required. Instead, interest can be added to the loan. This can provide payment flexibility, but it also means the outstanding balance may grow over time.
How Is Lifetime Mortgage Interest Added?
Where interest is not paid, it is generally added to the outstanding loan balance. Future interest can then be calculated on the increased balance and his is commonly referred to as roll-up or compound interest.
Why Does The Balance Increase?
The original amount borrowed remains outstanding and unpaid interest is added to it. Over a long period, the effect of interest being charged on a growing balance can become significant.
Can You See How The Loan Might Develop?
A personalised illustration should show how the balance could change over time based on the plan terms and assumptions used. This is an important part of understanding the potential long-term cost before proceeding.
Can You Make Voluntary Payments?
Some Lifetime Mortgages allow voluntary repayments within specified limits. Depending on the plan, paying some interest or reducing the balance may help limit how quickly the amount owed grows.
What Does This Mean For Inheritance?
Because the loan and accumulated interest are normally repaid from the property sale after death or a move into permanent long-term care, a larger balance can reduce the value remaining in the estate. The impact should be discussed as part of the advice process.
What Else Should Be Considered?
A Lifetime Mortgage may affect entitlement to means-tested benefits and can have other long-term implications. Alternatives such as downsizing, using savings or other borrowing should also be considered.
How HFA Later Life Can Help
HFA Later Life can explain the way interest works, review personalised illustrations and help you understand the potential effect of a Lifetime Mortgage over time. Visit https://hfalaterlife.uk to arrange a no-obligation conversation.
FAQs – Lifetime Mortgage Interest
Do I have to pay Lifetime Mortgage interest every month?
Many Lifetime Mortgages do not require mandatory monthly payments, although product features vary.
What happens if I do not pay the interest?
It can be added to the loan balance, meaning the amount owed may increase over time.
Can I choose to make payments?
Some products allow voluntary repayments, subject to their terms.
Why is a personalised illustration important?
It helps demonstrate how the loan balance may develop over time under the plan assumptions.
Can growing interest reduce inheritance?
Yes. A higher loan balance can reduce the value remaining in the property for the estate.
Disclaimer:
Equity release includes Lifetime Mortgages and Home Reversion Schemes. We can advise and arrange Lifetime Mortgages and will refer to an approved specialist for Home Reversion schemes. This is a Lifetime Mortgage. These are only applicable to those 55 and over, and it could affect eligibility to state means-tested benefits and the inheritance you may leave. To understand the features and risks, ask for a personalised illustration.
There may be a fee for mortgage advice. The precise amount will depend upon your circumstances and will be agreed with you before proceeding, but we estimate it will be £1,500 payable at completion for equity release products.
