Before committing to an Equity Release Lifetime Mortgage, it is vital to understand how the interest is charged. Interest will make up a significant portion of the debt as it accumulates, so you need to have all the information necessary to make an informed decision about what kind of plan is right for you. In this article, we’ll look at some of the most common questions we get asked about Lifetime Mortgage interest and what you need to consider.
Not all have this, you can pay the interest if you prefer by making monthly payments each month which keeps the amount borrowed at the same amount for as long as you pay; however if you stop paying, the Lifetime Mortgage interest will then be added to the loan. The most common Lifetime Mortgages that are taken out, have a compound interest structure, so it accrues on top of the amount you have released. This essentially means that interest is charged on interest, however you make no monthly payments.
With Equity Release, interest is added to the original loan amount and defined by the amount you have released and the interest rate in force. The interest is compounded and it is worked out based on the original loan amount plus any interest that has accrued by that time. The interest is calculated constantly. This process happens until the mortgage is repaid.
Equity Release can be a useful way to pay off an outstanding standard mortgage or interest-only mortgage, however you will need to have enough equity in your home in order to cover that amount. If you are looking to set up an interest-only mortgage, you might find that a Lifetime Mortgage is a handy alternative, as there will be no obligation to make those payments and the amount borrowed plus interest is only repaid after you pass away or enter long-term care. However, the interest rates on each mortgage are unlikely to be the same.
As interest rates are changing all the time, it is hard to give an average amount. You can talk to an Equity Release adviser to get an idea of the rate you’ll be charged, however this depends on several factors, including the amount you want to borrow, your age, the type of plan you opt for, and the value of your home. However, when a Lifetime Mortgage completes, the interest rate is fixed until the end of the mortgage.
If you’re thinking about Equity Release, being aware of all the facts is prudent. Speak with a Bower adviser today to learn more about which plan is right for you, how much interest you are likely to be charged, the effects on any inheritance and how it will reduce the value of your estate. Equity release may also affect any means-tested benefits that you may qualify for. We will advise further before you proceed.