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Interest only lifetime mortgage

If you're over the age of 55 an interest only lifetime mortgage could allow you to release a cash lump sum via a mortgage secured on your home. You also retain full ownership of your property.

This is the most cost-effective method of equity release as it allows you to manage the associated interest charges by making monthly repayments. As long as you keep up with the interest payments the amount you owe never increases. This avoids the compounding of interest associated with lifetime mortgages, where interest is charged on the interest already added to the mortgage.

To qualify, you must meet the provider’s affordability criteria. If you can’t afford or choose not to make full repayments you can elect to make partial payments, to help reduce the long-term cost.

Fixed interest rate

Unlike conventional mortgages the interest rate for lifetime mortgages is fixed for the life of the plan giving you peace of mind and certainty that your repayments will not increase. 

Flexibility

If your circumstances change in the future, you have the option to switch to a lifetime mortgage not requiring repayments. A higher interest rate may apply but this feature ensures you can remain in your home even if payments become unaffordable.

Some products will also allow you to:

  • Add a protected equity option, to guarantee some of the value of the property will be available to leave as an inheritance
  • Add a pre-approved flexible borrowing facility, to enable you to access further funds if you need to in the future

Your advisor will discuss all of your available options before making a specific recommendation based on your individual needs and objectives.

 

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What our clients say

"Extremely helpful and willing to answer questions and come back with information very swiftly. Our advisor gave us the confidence to go ahead with this financial decision."

Frequently asked questions

When is an interest only lifetime mortgage repaid?

The outstanding amount is repaid from the proceeds of the sale of your property either on death (with a couple it’s on the death of the last survivor) or following a move into permanent long-term care.

Can I transfer my plan to another property?

All Equity Release Council plans that meet SHIP (Safe Home Income Plan) criteria are portable; this means they can be transferred to a new property, subject to the approval of the plan provider.

How much money will I owe the provider when the plan finishes?

Providing you've maintained your monthly repayments for the duration of the plan then you’ll only be required to repay the original amount borrowed when the plan ends.

Could equity release lead to negative equity?

All Equity Release Council plans that meet SHIP (Safe Home Income Plan) criteria carry a 'no negative equity' guarantee. This means that the amount owed can never exceed the value of your property.

How much money can I borrow via an interest only lifetime mortgage?

The amount you can borrow depends on the value of your property, your age, and sometimes your health. New mortgage rules mean any interest only lifetime mortgage applications will be assessed based on whether you can afford to repay the loan.

Usually the amount you can release is linked to your age; the older you are the greater the cash sum that can be released. Most providers will release a fixed percentage based on your age. For example a 60-year-old could release 20%, a 65-year–old could release 25%, and so on. The amount available varies between providers.

Who would be responsible for the maintenance of my home?

With lifetime mortgages you’re responsible for the maintenance of your property to a reasonable standard.

Could entitlement to means-tested benefits be affected?

Yes, depending on the amount borrowed and purpose of the release.

Before making a recommendation your advisor will complete a full benefits assessment looking at the impact equity release may have on any means-tested benefits you receive now or are likely to receive in the future. 

What impact would changing house prices have on my plan in the future?

You retain the full benefit of any increases in the value of your property.

If the value of your property falls, the amount of money following the sale of the property and repayment of the plan will also decrease. If your plan offers a 'no negative equity' guarantee, the amount owed can never exceed the value of your property.

What impact will equity release have on my on inheritance tax liability?

A lifetime mortgage could reduce your inheritance tax liability as the amount you owe on the plan is deducted from the value of your estate before your tax liability is calculated.

Will I still be able to leave an inheritance?

The amount of inheritance available will be the difference between the proceeds from the sale of the house and the amount outstanding on the plan when it’s redeemed. If your plan has a lifetime fixed interest rate you’ll have the certainty of knowing exactly what your future liability will be.

We can’t predict the future value of your property as prices could be higher or lower than they are today when the property is eventually sold. Therefore we cannot predict what inheritance will be available.

Some providers offer an inheritance protection facility on their plans which allow clients to protect a specific percentage of the property’s future value. Your advisor will discuss this option if protecting an inheritance is one of your priorities.

Would I still own my home?

You’ll keep 100% ownership of your property.  

What fees are involved with setting up a plan and when must they be paid?

There are four main costs associated with setting up any equity release plan.

Survey fee – This is payable when you submit your application. The amount usually depends on the estimated value of your property.

Application fee – This is paid to the provider when your plan completes. This fee can be borrowed as part of the release and is typically £695.

Legal fee – We recommend that you agree a fixed fee with your solicitor once your equity release offer has been confirmed. Typical legal fees range between £400 and £500.  If you’re purchasing a property, or the legal position of your property is not straightforward, additional costs may apply.

Advice fee – StepChange Financial Solutions does not charge an advice fee.

Can I lose my home?

Providing you adequately maintain your home and fulfil the terms of the agreement, all plans that meet the Safe Home Income Plan (SHIP) standards via the Equity Release Council guarantee lifetime tenancy in your property, regardless of what happens to future interest rates, property values or investments.

How long does an application take to complete?

The time taken to complete an application varies, depending on each applicant’s individual circumstances. Typically you should allow four to six weeks from the time you submit your application. All funds will be released directly to your solicitor.

If you've got any other questions or if you would like to book an appointment with an advisor please call us on 0808 168 6719 (free from UK landlines) or email us at financialsolutions@stepchange.org.

This is a lifetime mortgage. To understand the features and risks, ask for a personalised illustration.

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0808 168 67199am to 5pm Monday to Friday

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Which? equity release report

Which equity release report

Under our previous name, CCCS Equity Release, we were the only advice service to pass all of Which?'s equity release tests

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Listen to our financial advice manager, Tom Moloney, answering questions with Ruth Alexander on BBC Radio 4's Money Box.

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They were a pillar of support to me.” (Leslie, Essex)

Foundation for Credit Counselling Wade House, Merrion Centre, Leeds, LS2 8NG trading as StepChange Debt Charity and StepChange Debt Charity Scotland. A registered charity no.1016630 and SC046263. It is a limited company registered in England and Wales (company no:2757055). Authorised and regulated by the Financial Conduct Authority.

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