Mortgages & Home Income Plans
Interest Only Mortgages
A mortgage is raised against the home; the borrowed capital is eventually repaid from the sale of the property, rather than from an endowment or other independent savings scheme.
You borrow a lump sum secured against the value of your home. You pay interest each month. You can spend the money as you see fit.
The capital is eventually repaid from the sale proceeds.
| Advantages | Disadvantages |
|---|---|
| Amount owed is fixed so you keep any increase in home value | You must meet monthly interest payments |
| Borrowing at a fixed rate gives certainty to monthly payments | Part of the loan may be needed to fund the interest payments |
| Variable rates may present a risk if interest rates rise |
Roll up Mortgages
The lender gives you a lump sum, a monthly income or both. You contribute nothing - the interest is 'rolled up' into the loan
The amount borrowed plus the interest is repaid from the eventual sale of the home. How much you can borrow depends on your age and the property's value. The older you are, the more you can borrow. You are unlikely to be advanced more than 50% of your home's value.
| Advantages | Disadvantages |
|---|---|
| No interest payments | Uncertainty about how much will have to eventually be repaid |
| Higher pro-rata income compared with interest-only mortgages or home income plans | Uncertainty about how much equity will be left for your inheritors |
| Normally a lower-risk fixed-interest loan | Interest payments can mount up quickly, reducing inheritance |
| Lessens Inheritance Tax for estates over the IHT threshold | Interest rates may be high |
| Plans available for people aged 55 and over | Top-up loans may not be available |
Home Income Plans
These plans provide a regular income instead of a capital lump sum, and do not need to be repaid until the home is sold. You take out a mortgage against your home. The money is used to buy an annuity which guarantees an income for life. Mortgage repayments are deducted from the monthly income, the remainder is yours. The mortgage is repaid from the eventual sale of the home.
| Advantages | Disadvantages |
|---|---|
| Regular income for life | Not suitable for those looking for a large lump sum |
| Interest deducted automatically | Inflation erodes fixed income |
| Amount owed is fixed | Built-in annuities may not be competitive |
| You keep any increase in home value | Low annuity rates mean plans only suitable for older home owners |
| You may possibly purchase a competitive annuity elsewhere |
Shared Appreciation Mortgages
You borrow a lump sum based on the value of your home
No repayments until you die or the home is sold. After which the amount you originally borrowed is repaid plus an agreed percentage of the amount by which the home has increased in value.
| Advantages | Disadvantages |
|---|---|
| No regular repayments | If house prices rise strongly, the effective cost of the loan could be very high |
| The loan may cost nothing if the home's value has not changed | You may be effectively 'locked' into the property |
The Company cannot accept any liability for the accuracy of the information above or clients reliance on it.
