You are using an outdated browser. Please upgrade your browser to improve your experience.

What is an interest only lifetime mortgage?

An interest only lifetime mortgage is a relatively new kind of equity release plan where you can pay the interest due on a monthly basis, so the size of your loan repayment never goes up. They’re an increasingly popular option for over-55s – but could an interest only lifetime mortgage be the right option for you?

How an interest only lifetime mortgage works

Like other types of lifetime mortgage, an interest only lifetime mortgage is a way to release equity from your home to spend as you wish – and you need to meet many of the same requirements, like being at least 55.

But unlike those other types, with an interest only lifetime mortgage, you pay off the interest on the equity release loan monthly – rather than paying it off along with the loan through the sale of your home when you pass away or move into care.

Because you’re only paying the interest, the balance you owe for the loan itself never changes.

man and wife outside of their home

The key differences

Here are the main five ways an interest only lifetime mortgage is different from other types of mortgage plan.

  1. You only repay the interest – so the amount you owe never goes up or down
  2. There’s no upper age limit – you just need to be over 55
  3. Interest can be fixed for life – helping you plan your retirement finances
  4. There’s no end date – the loan gets repaid after you pass away or go into permanent care
  5. You can stop paying any time – you’ll still stay in your home, but the ongoing interest will be added to your debt from that point, effectively becoming a roll-up lifetime mortgage

More and more over-55s are turning to equity release interest only lifetime mortgage providers as a way to protect their family’s future inheritance: because you retain ownership of your home and your estate will still benefit from any increase in its value when it is sold.

Another benefit is that interest only lifetime mortgages don’t penalise older borrowers. If anything the opposite is true as the amount of equity you can release increases the older you are. Interest only lifetime mortgage providers base their calculation on the age of the youngest applicant and the market value of the property.

However, it’s worth remembering that while your monthly repayments will usually be a lot lower than some other mortgages, interest only lifetime mortgage interest rates are higher. That means you’ll ultimately end up paying more interest over time without increasing your share of the ownership of your home. Let’s take a quick look at why this is…

Let’s say you borrowed £200,000 through an interest only lifetime mortgage. However much the value of your home increases over time, that £200,000 loan plus the interest accrued would need to be paid off when you pass away or move into care. When this time comes, your family would benefit from an increase in your house price, however they’ll need repay what you owe to the interest only lifetime mortgage provider first, then what’s left will be their inheritance unless you have any other debts that need to be repaid. If you didn’t take out an interest only lifetime mortgage, they would benefit from the full sale value of your home.

man and wife enjoying the countryside

Is an interest only lifetime mortgage right for you?

In the past, retirees often found it hard to borrow because of their age, but things are changing. There’s no age barrier when it comes to an equity release interest only lifetime mortgage – it allows you to borrow whether you’re as young as 55 or upwards of 90 years old.

With their sensible approach to lending and flexible features, interest only lifetime mortgage providers are proving an attractive option to many looking to release tax-free cash from their homes in later life.

An interest only lifetime mortgage could be particularly suited to you if:

  • You’re comfortable with an existing, standard interest only mortgage (not the equity release ‘lifetime’ kind), but your current provider needs repaying
  • You’d like to use equity release to help your family or just one of your children financially, but don’t want to jeopardise the future inheritance for the rest of the family

Our advantages and disadvantages of an interest only lifetime mortgage may also help you to consider whether it would be right for you. Many of these also apply to other types of lifetime mortgages, so you should explore these too.

Advantages

  • Interest is fixed – so your monthly payments never change and your debt never increases provided payments are maintained
  • You keep ownership of your home – and benefit from any future increase in value
  • The cash you unlock is tax free – and yours to spend on whatever you like
  • You can stop paying any time – with the flexibility to switch to a ‘roll-up’ lifetime mortgage
  • If you’re over 55, you qualify – if your home qualifies too, you’re good to go
  • You don’t need to pay back the loan capital – it gets paid when you pass away or go into care
  • It’s not based on income, just your age and property value – making it ideal for retirees
  • Take your mortgage with you if you move – as long as the new home meets certain criteria

Disadvantages

  • Equity release affects inheritance – reducing what you can leave to loved ones
  • Your means tested benefits could be affected – always get trusted financial advice before you go ahead
  • Interest repayments add to your overall monthly spending – unlike other types of equity release plans where there’s nothing to pay monthly
  • There are early-repayment charges – if you want to pay off the loan early
  • Interest rates are usually higher – because they’re fixed for life, interest only lifetime mortgage interest rates are normally higher than some other mortgage rates
  • You can’t get one unless your home is mortgage free – or if you can borrow enough to clear any existing mortgage or secured loan
  • How much cash you can unlock is limited – it’s a percentage of your home’s value based on your age. If you want to access more of your equity, there are other mortgage options also suited to retirees
man and wife walking the dog on the beach

Alternatives to an interest only lifetime mortgage

An interest only lifetime mortgage could be a useful option for those wishing to release equity from their home in later life, but it’s not the only way.

Other types of lifetime mortgage

Unlock tax-free cash from your home by taking a loan against your home with a lifetime mortgage.

Roll-up lifetime mortgage

No monthly payments. The loan and any interest is paid by the sale of your home when you pass away or move into care.

Drawdown lifetime mortgage

A drawdown lifetime mortgage is like a roll-up lifetime mortgage, but you take the loan in instalments, leaving cash in an interest-free reserve account till you need it.

Flexible lifetime mortgage

You can choose to make voluntary payments to bring down your mortgage loan amount.

Enhanced lifetime mortgage

Only for those with medical conditions, these let you unlock more cash from your home, and may qualify for better rates.

Home reversion

With a home reversion plan, you can unlock tax-free cash from your home by selling a share (or all) of your property to your equity release provider.

Read more about the different types of equity release.

Get the right advice

At SunLife, we’ve been working with people over 50 for more than 200 years – and we’ve learned to focus on what works best for our customers. When you talk to The SunLife Over 55 Equity Release Service about an interest only lifetime mortgage, rest assured we’ll put you in touch with an independent expert advisor before you make any big decisions.

The impartial advisors we’ll put you in touch with are members of the Equity Release Council – a not-for-profit industry body for equity release. Like SunLife, they are also fully regulated by the Financial Conduct Authority (FCA), which has provided protection and peace of mind for equity release customers since 2004.

With any lifetime mortgage you take out through us, you can be reassured that you’ll get a ‘no negative equity guarantee’ meaning you’ll never owe more than the value of your home so will not pass any debt onto your family.

Be sure to talk things over with family and loved ones, too.

Whenever you’re ready, we’re here for you

For more information and to check your eligibility, call The SunLife Over 55 Equity Release Service today on 0800 633 5566 or request a call back.

Here's the information that you need to know about who we are and the other companies that we work with in order to provide our products and services.

Who are SunLife?

Phoenix Life Limited trades as SunLife and is the provider of the Guaranteed Over 50 Plan, SunLife Insurance and the life insurance policy payment option for Funeral Plans. Phoenix Life Limited’s registered office is at 1 Wythall Green Way, Wythall, Birmingham, B47 6WG (registered in England, no. 1016269). Dignity Funerals is not authorised or regulated for this activity by either the Financial Conduct Authority or the Prudential Regulation Authority. Dignity Funerals Ltd is a member of the National Association of Funeral Directors.

SunLife Limited distributes financial products and services and is a company limited by shares, registered office: 1 Wythall Green Way, Wythall, Birmingham, B47 6WG (registered in England, no. 05460862). SunLife Limited is authorised and regulated by the Financial Conduct Authority and is entered on the Financial Services Register (registration no. 769427).

You can contact us by post at SunLife, PO Box 1395, Peterborough, PE2 2TR or by phone on 0800 008 6060.

If you choose to add Funeral Benefit Option to your Guaranteed Over 50 Plan the funeral services are arranged and provided by Dignity Funerals Limited. Dignity Funerals Limited is a company registered in England and Wales No. 00041598. VAT registered No. 486 6081 14. 4 King Edwards Court, King Edwards Square, Sutton Coldfield, West Midlands, B73 6AP. Telephone No. 0121 354 1557. Fax No. 0121 355 808. Part of Dignity plc. A British Company. Dignity is not authorised or regulated for this activity by the Financial Conduct Authority or the Prudential Regulation Authority but is a member of the National Association of Funeral Directors.

Who provides the Funeral Plans?

Dignity Funerals Ltd arranges and provides the funeral services. Dignity Funerals is not authorised or regulated for this activity by either the Financial Conduct Authority or the Prudential Regulation Authority. Dignity Funerals Ltd is a member of the National Association of Funeral Directors.

The life insurance policy that pays for your funeral will be provided by Phoenix Life Limited, trading as SunLife.

Who provides My Smarter (ISA)?

My Smarter (ISA) is provided by Scottish Friendly Asset Managers Limited. Authorised and regulated by the Financial Conduct Authority. Details can be found on the Financial Services register, registration No. 188832. Member of The Investment Association. Registered Office: Scottish Friendly House, 16 Blythswood Square, Glasgow G2 4HJ.

Who provides the Will writing services?

Hugh James is authorised and regulated by the Solicitors Regulation Authority (SRA Number:303202).

The information contained on this website is based on Hugh James' understanding of the law of intestacy in England and Wales only as at April 2014. The law in Scotland and Northern Ireland is significantly different. This is for information purposes and is not intended to be legal advice.

Who provides Family Life Insurance?

SunLife Family Life Insurance is provided by Scottish Friendly Assurance Society Limited which is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Details can be found on the Financial Services register (registration number 110002). Registered Office: Scottish Friendly House, 16 Blythswood Square, Glasgow G2 4HJ. 

Who provides SunLife Pet Insurance

SunLife Pet Insurance is arranged and administered by BDML Connect Limited. BDML Connect Limited is authorised and regulated by the Financial Conduct Authority (No. 309140). Registered in England and Wales Number 02785540. Registered Office: 45 Westerham Road, Bessels Green, Sevenoaks, Kent, TN13 2QB.

Who provides SunLife Home Insurance

SunLife Home Insurance is arranged and administered by BISL Limited and underwritten by a panel of insurers. BISL Limited are an intermediary authorised and regulated by the Financial Conduct Authority. Registered in England no. 03231094. Registered office Pegasus House, Bakewell Road, Orton Southgate, Peterborough PE2 6YS.

Who provides SunLife Car Insurance

SunLife Car Insurance is arranged and administered by BISL Limited and underwritten by a panel of insurers. BISL Limited are an intermediary authorised and regulated by the Financial Conduct Authority. Registered in England no. 03231094. Registered office Pegasus House, Bakewell Road, Orton Southgate, Peterborough PE2 6YS.