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        Updated: April 19, 2024

        Interest-Only Equity Release

        Considering an interest only equity release mortgage? Trying to understand if it's the right move for you? Find out all the answers in our expert guide!

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        We can help! We know everyone's circumstances are different, that's why we work with mortgage brokers who are experts in Equity Release Mortgages Ask us a question and we'll get the best expert to help.

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        No impact on your credit score

        If you’re considering an equity release arrangement, there are a number of considerations to make, including which type is the most suitable for your needs and circumstances.

        In this article, we’ll look at the major features of an interest-only lifetime mortgage, the importance of taking expert advice in this area, and how to decide whether it’s the right option for you.

        What is interest-only equity release?

        The term ‘interest-only equity release’ refers specifically to interest-only lifetime mortgages, a type of equity release product that affords you the option to repay all, or some of the interest each month, rather than let it roll-up. You are under no obligation to maintain these repayments, however, and, more importantly, your home will not be repossessed if you decide to stop them, or can no longer afford them.

        An interest-only lifetime mortgage can prevent the compounded interest charges from wiping out any inheritance you were hoping to leave. With this type of lifetime mortgage, only the original loan amount will need to be repaid, and the remaining profits from the sale of your home will be returned to your estate.

        If you’d like to see how much equity you may be able to release from this type of scheme, take a look at our calculator here and input an estimated value of your property and your age:

        calculator icon

        Equity Release Calculator

        You can use our equity release calculator to work out how much capital you can release from your home. Simply enter your age and the property’s value and the tool will do the rest.


        Estimate if you're unsure
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        For joint applications the amount you can release is based on the age of the youngest applicant
        years old

        Maximum Equity you could release:

        The amount is of your homes value, the maximum most borrowers your age can release.

        Get Started with an Equity Release Specialist and find out exactly how much you could release.

        Get Started with a Broker

        Maximise your chance of approval with specialist advice from an expert in Equity Release.

        When are payments made?

        Interest is charged on the full cost of the loan each month, and paid monthly, usually by direct debit. The final balance of the loan is paid once you have passed, or moved into care. Whilst it’s most cost-effective to pay the interest charges in full each month, you can generally choose an amount to repay that suits you. Some providers will even allow you to repay elements of the capital each year without penalty.

        The FCA (Financial Conduct Authority) no longer requires lenders to carry out affordability checks for interest-only lifetime mortgages, so you can choose to repay some or all of the interest, with pension funds, savings, or any other method available to you.

        Can you use equity release for consolidating debts?

        Yes, you can. The tax-free cash sum can be used for any purpose, including paying off existing debts. Before you make this sort of decision, however, it’s crucial that you speak to an equity release specialist who will be able to accurately calculate the overall benefits of this against your circumstances.

        Whilst interest rates may appear to be considerably lower than credit card rates, for example, it’s important to remember that there is no fixed term for a lifetime mortgage, so interest will continue to accumulate until you either die or move into a care facility. This could mean that you end up paying more in interest in the long-term, especially if you’re a younger applicant with a longer life expectancy.

        How a broker can help

        An equity release plan is such a specialist and heavily regulated arrangement, and interest only agreements are a niche area of it. So it’s crucial that you speak to an expert before making any decisions. As well as helping you to access all lenders in the equity release market, a specialist broker will be best placed to advise you whether an interest-only lifetime mortgage is the right option for you, or potentially recommend a more suitable, and/or cost-effective alternative, if not.

        If it turns out that this type of lifetime mortgage is right for you, they will be able to find the best rates and lenders most suited to your circumstances. All of the equity release brokers we work with are members of the Equity Release Council, and have expertise in all types of equity release products.

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        Lenders and rates

        Interest rates are typically fixed for the full duration of an interest-only lifetime mortgage, and although higher than standard mortgage rates, they have become more affordable in recent years. Rates as low as 3% are available at the time of writing, and some lenders also offer incentives, such as free home valuations, or arrangement fees.

        Whether you choose to service the interest does not typically have an effect on the interest rates available to you, with most lenders basing this on your personal circumstances, such as:

        • Age – You will need to be 55+ (60 for some lenders)
        • Health/life expectancy – Older applicants and/or those with ill health may be able to access better rates
        • Property ownership – Your home needs to be based in the UK and valued at at least £70,000 (or up to £100,000 for some lenders)
        • Property condition and location – Your home must be in saleable condition, and lenders may have geographical restrictions. There are also certain types of property that some lenders won’t consider, for example, listed buildings
        • Borrowing requirements – Most lenders will only consider loans of £10,000 or more

        Things to consider

        Before you apply for an interest-only equity release mortgage, consider the following factors…

        Fluctuation in house prices

        Even if you opt to fully repay the monthly interest charges, there is a potential that the proceeds of sale may fall short of repaying the loan if your home significantly decreases in value. Whilst the Equity Release Council’s ‘no negative equity guarantee’ will ensure your estate would not be liable for this shortfall, it may leave your beneficiaries without an inheritance, or reduce what you had planned to leave them.

        The good news is, some of the more flexible interest-only lifetime mortgages allow you to ring-fence a certain element of your home’s equity for inheritance purposes.

        Further borrowing

        Some interest-only equity release products allow you to pre-approve additional equity for future borrowing. Whilst this can be helpful, it would decrease the amount of inheritance you leave behind.

        Alternative options

        Equity release is a serious commitment, and a reputable equity release broker, like the ones in our network, will ensure you consider all of the below options before you make an independent, but well-informed decision:

        Compound interest lifetime mortgages

        This works in exactly the same way as an interest-only lifetime mortgage, except in terms of the interest, which is rolled up and paid back on top of the final lump sum, once you have passed away, or moved into care.

        Home reversion plans

        Although largely replaced by lifetime mortgages, there are still some home reversion plans available. They allow you to sell your home to the equity release provider, either in part or in full, at the beginning of the plan. You’re able to remain in your home rent-free until you die, or move into care, however, you will no longer own your home.

        RIO (Retirement interest-only) mortgage

        This is very similar to an interest-only lifetime mortgage, in that there is no end date, and the lump sum is repaid, usually from the sale of your home, once you’ve passed on or moved into long-term care. It could be a viable option for slightly younger retirees, as there is no minimum age requirement.

        With RIO mortgages, you make interest payments each month and have the option to chip away at the capital too. But with equity release mortgages, the interest can be rolled up and settled at the end of the agreement, so there are no mandatory monthly repayments.

        Your affordability will be taken into consideration for a RIO mortgage, and you must service the interest payments each month, or in extreme cases risk repossession if you fail to do so. The interest rates are only fixed for an initial period, so there is a chance that your repayments will increase over time.

        Extend your mortgage

        If you’re considering equity release because you’re unable to repay the balance of an existing interest-only mortgage, it may be possible to extend the length of your existing mortgage, depending on your lender’s flexibility, and your personal circumstances.

        Remortgaging

        If your home has built up substantial equity, a standard remortgage may provide you with the funds that you need. This could be a cheaper, or more suitable plan than equity release, for some people, depending on your age and other circumstances.

        Get matched with an equity release expert

        In order to make the best choice for you, and feel confident in your decision, it’s vital that you speak to an equity release expert before you consider an interest-only lifetime mortgage or any other form of equity release product. All of the brokers we work with are fully accredited to advise on equity release products and have strong working relationships with those lenders who are trusted members of the Equity Release Council.

        Get in touch now to utilise our 5-star rated broker matching service, and we’ll pair you with the expert with the most suitable experience for your needs and circumstances. Simply complete this form, or call us on 0808 189 0463 to get started today.

        Ask A Quick Question

        We can help! We know everyone's circumstances are different, that's why we work with mortgage brokers who are experts in Equity Release Mortgages Ask us a question and we'll get the best expert to help.

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        Pete Mugleston

        Pete Mugleston

        Mortgage Expert, MD

        About the author

        Pete, an expert in all things mortgages, cut his teeth right in the middle of the credit crunch. With plenty of people needing help and few mortgage providers lending, Pete found great success in going the extra mile to find mortgages for people whom many others considered lost causes. The experience he gained, coupled with his love of helping people reach their goals, led him to establish Online Mortgage Advisor, with one clear vision – to help as many customers as possible get the right advice, regardless of need or background.

        Pete’s presence in the industry as the ‘go-to’ for specialist finance continues to grow, and he is regularly cited in and writes for both local and national press, as well as trade publications, with a regular column in Mortgage Introducer and being the exclusive mortgage expert for LOVEMoney. Pete also writes for OMA of course!

        FCA Disclaimer

        *Based on our research, the content contained in this article is accurate as of the most recent time of writing. Lender criteria and policies change regularly so speak to one of the advisors we work with to confirm the most accurate up to date information. The information on the site is not tailored advice to each individual reader, and as such does not constitute financial advice. All advisors working with us are fully qualified to provide mortgage advice and work only for firms that are authorised and regulated by the Financial Conduct Authority. They will offer any advice specific to you and your needs.

        Some types of buy to let mortgages are not regulated by the FCA. Think carefully before securing other debts against your home. As a mortgage is secured against your home, it may be repossessed if you do not keep up with repayments on your mortgage. Equity released from your home will also be secured against it.