What is the difference between interest-only mortgage and lifetime mortgage?

Asked by hullscott

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Answered by John Stirling, IFA in Saffron Walden, ESSEX
An interest only mortgage is one where you only pay the interest (hence the name) on a monthly basis, and at some predetermined time (set at outset) you will have to repay the balance as a lump sum, which allowing for fees, and rounding errors will be the same amount as you borrowed.

A lifetime mortgage is one that lasts for life (or often until permanent vacation of the property as a result of ill health) - you may or may not make payments, but it is not expected that the loan will ever be paid off until death - there is no fixed term. Obviously if you are not making payments then the principal (the amount you borrow) will increase by the amount of interest you are not paying.

The two types of mortgage are available to different people, and are generally very differently underwritten (the lenders take different factors into consideration before granting them).
| 12.03.10 @ 16:09
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$commenter.renderDisplayableName() — {comment} | 10.22.17 @ 15:24
Answered by Tony Pomphrett, IFA in Colchester, ESSEX
lifetime mortgages are also know as equity release schemes designed for the elderly who may be asset rich and cash poor. The interest rolls up over the term of the loan which is normally repaid on death with the remainder of the value then passing to the beneficiaries. | 12.06.10 @ 17:29
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$commenter.renderDisplayableName() — {comment} | 10.22.17 @ 15:24
Answered by Chris Kelly, IFA in Boldon, TYNE_AND_WEAR
With lifetime mortgages interest is also charged on the previously unpaid interest. This compounding effect means that the outstanding debt owed on the property (the mortgage) grows at an ever increasing rate. Equity in the property will be eaten up although borrowers should always have the right to live in the property if the loan has been arranged through an authorised adviser. | 12.07.10 @ 07:08
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$commenter.renderDisplayableName() — {comment} | 10.22.17 @ 15:24
Answered by Darren Smith, IFA in Basingstoke, HAMPSHIRE
The key distinction, over and above what has already been mentioned is that lifetime mortgages require an additional level of qualification in order to advise on them and not all mortgage advisers will be able to offer that service.

The added qualifcation is to safeguard the borrowers as they will tend to fall into a higher risk category than a traditional mortgage client - due to age and financial circumstances.

lifetime mortgages are more sophisticated than standard residential mortgages. | 12.07.10 @ 13:08
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$commenter.renderDisplayableName() — {comment} | 10.22.17 @ 15:24
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Answered by

John Stirling
John Stirling, IFA in Saffron Walden, ESSEX

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