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Interest reward lifetime mortgage: everything you need to know

Equity release comes with a range of products, each designed to match a different set of circumstances and lifestyles. Each equity release product comes with its own advantages and disadvantages so it’s important to understand the differences between options.  

Our equity release specialists are on hand to answer any questions you might have and give you no-obligation advice to make sure you’re matched with the best option.  

What is the interest reward lifetime mortgage?  

The interest reward lifetime mortgage is a product designed to release equity from your home with flexibility in mind. You’ll have the option to make regular payments to pay off the interest, in addition to making overpayments if you wish, during the duration of your plan.  

How does it work? 

The interest reward lifetime mortgage is similar to a standard lifetime mortgage with its eligibility criteria and the amount of equity you may be eligible to release. The difference remains with repayments; by agreeing to make regular payments towards the interest, you are rewarded with a more favourable interest rate.  

In addition to making payments towards the interest, you can also make optional overpayments towards your plan.  

The process remains similar with other lifetime mortgage products, and you will need to work closely with an equity release specialist along the way. They work closely with you and your family to make sure all of your questions are answered, and you understand the process every step of the way.  

Once your loan has been agreed and you have completed your paperwork you will receive your tax-free lump sum directly into your nominated bank account. 

Can interest reward lifetime mortgages be repaid?  

Yes, you can make monthly repayments towards your interest reward lifetime mortgage. In addition to monthly payments towards the interest, you’ll have the option to make overpayments of up to 10%, allowing you to ultimately repay your loan in full.  

It is important to remember you are under no obligation to make monthly repayments and can revert to a standard roll up of interest lifetime mortgage at any point. 

What are the advantages and disadvantages of an interest reward lifetime mortgage? 

When looking to release equity using the interest reward lifetime mortgage, it is important to understand how this will impact on your needs and objectives. Our specialist equity release advisers will work closely with you to provide a recommendation of which product is best suited to you and how this may impact your circumstances. 

The advantages: 

  • You will have the flexibility to stop your payments if you choose. This will revert the plan to a standard lifetime mortgage with the roll-up of interest. 
  • An interest reward lifetime mortgage comes with an overpayment facility. This allows for 10% overpayments per year. 
  • Up to 100% of the interest can be paid from outset. 
  • The mortgage comes with an Equity Release Council protection. This means you will have a no negative equity guarantee and the assurance that the provider follows the standards of the Equity Release Council.  
  • There is no affordability assessment when it comes to an interest reward lifetime mortgage as you are not obligated to make monthly payments.  
  • Interest reward lifetime mortgages can offer competitive rates based on your personal circumstances. 

The disadvantages: 

  • If you decide to stop the interest payments, the plan will revert to a standard lifetime mortgage with the roll-up of interest. The outstanding initial loan plus any added interest will need to be repaid in full when you pass away or move into long-term care.  
  • You will be subject to early repayment charges which will start at 8%, decreasing annually over an 8-year period for any overpayments over 10% of the initial loan amount in any 12-month period.  
  • Your eligibility for means tested benefits may be affected. 
  • The loan plus any interest added will reduce the value of your estate and the amount you are able to pass on to beneficiaries or use to fund your long-term care. 

What is the difference between an interest reward and standard lifetime mortgage? 

With both lifetime mortgage products, you will maintain ownership of your home and the loan plus any interest will need to be repaid after you pass away or move into long-term care, but what’s the difference?  

The Interest reward lifetime mortgage is designed with flexibility and repayments in mind. In comparison, a standard lifetime mortgage is designed to allow the interest to roll-up and be paid off when you move into long term care or pass away.  

Older couple using laptop

With a standard lifetime mortgage, the amount you owe will increase over time as you are not making any payments towards the interest which is rolling up. Should you decide to repay the plan, early repayment charges will apply to the initial loan and added interest. This will have a bigger financial impact on your estate compared to repaying some or all of the interest on the interest reward lifetime mortgage.

It is important to seek impartial, financial advice when considering your options as an equity release specialist will be able to match you with the product that best suits your circumstances with the lowest plan costs. 

Is an interest reward lifetime mortgage right for me?  

If you are aged 55 or over and own your own home worth £99,000 or more, you could be eligible for an interest reward lifetime mortgage.  

Interest reward lifetime mortgages are often popular with customers who are comfortable in their daily life and are looking to release equity for holidays and larger purchases.  

An interest reward lifetime mortgage effectively functions as an interest-only mortgage with the option to make additional overpayments. It offers flexibility with no term end date, no contractual repayments, no affordability checks, and no risk of repossession. 

If you decide you no longer wish to make payments you can stop at any time, and your plan will automatically move to a standard interest roll up lifetime mortgage. This means you will not be required to make any payments towards the loan however the interest will roll-up over the remainder of your plan and will be added to the loan. The total amount will be required to be repaid when you pass away or move into long-term care. 

Speak to an equity release specialist today 

Learn more about what equity release options are available and which one might suit your circumstances by speaking to an equity release adviser today. Alternatively, try our free online equity release calculator to see how much equity you could release from your home.  

At Bower, we will understand your unique circumstances and advise you to ensure you are receiving the best plan to meet your objectives. There are plans that allow you to make voluntary repayments and move home, subject to lender criteria. However, early repayment charges may apply in certain circumstances.

Equity release requires paying off any existing mortgage. Any money released, plus accrued interest to be repaid upon death, or moving into long-term care. Equity release will reduce the value of your estate and your entitlement to means-tested benefits now or in the future, and impact long-term care funding.

Bower Home Finance provides independent, impartial whole of market advice with an award-winning customer service experience. Initial advice is provided at no cost to you and without obligation. Only if you choose to proceed and your plan completes, would a typical advice and administration fee of £1,695 be payable.

If you are considering equity release, we strongly recommend that you read our equity release page carefully and talk to one of our specialists before deciding if you wish to proceed.

To find out more about any of the products and the service we provide, please call us on freephone 0800 411 8668request a call backemail us, or join our live chat you’ll find on our website.

Please be aware that equity release may involve a home reversion plan or lifetime mortgage which is secured against your property. All features and risks are thoroughly explained in your free personalised illustration.