Interest Only Lifetime Mortgage Calculator 

Are you wondering about lifetime mortgages and how they work? We’re here to help. Every month, over 7,000 people visit our website to learn about equity release.

Our guide will help you understand:

•  The idea of a lifetime mortgage
•  How a lifetime mortgage is repaid
•  The good and bad points of a lifetime mortgage
•  Where to get a lifetime mortgage
•  What happens when a lifetime mortgage ends

We know that thinking about money for your old age can be hard. But don’t worry. We’re here to help you learn about lifetime mortgages.

Let’s dive in.

How much is the rate?

The average interest rates on a lifetime mortgage can range between 2% and 8%. 

The rate you’re offered will depend on the company you’re using and possibly details about your property and your age, 

Can you get an interest-only variation?

Yes, there is a variation of a lifetime mortgage called an interest-only lifetime mortgage. With this variation of a lifetime mortgage, you can mitigate the debt and stop it from growing altogether.

It might be a middle ground if you want to use a lifetime mortgage but don’t want to risk your loved ones receiving considerably less than they otherwise would do in their inheritance. 

How is it calculated?

Lifetime mortgages are calculated by adding a compounding interest rate to the current total debt. This means that the interest which is added to the debt each month will be added to the total loan amount and any interest already accumulated.

In simple terms, a compounding interest rate causes the debt to grow much more quickly. But this is best understood with an example. 

An example

Let’s imagine you own a £195,000 home and wish to use a lifetime mortgage to access £65,000 of its value, equating to 33.33% of your equity as you must own the property outright. The loan is charged with compounding interest at 6.4%.

You take out this loan at 70 years old as a sole homeowner. At 82 – just 12 years later – you move into a residential aged care home, and at this stage, the lifetime mortgage must be repaid through the sale of the property. 

Thanks to inflation, your property sells for £210,000 (minus fees). But the £65,000 debt over time has snowballed into a debt of almost £137,000. Thus, the lifetime mortgage provider will take almost £137,000 from the £210,000 sale proceeds, leaving you with just around £73,000. 

How does it work?

An interest-only lifetime mortgage works the same way as a standard lifetime mortgage. The senior homeowner receives a loan based on a percentage of their property’s value. But instead of making no monthly repayments, the homeowner voluntarily agrees to pay some or all of the interest each month.

By paying off some of the interest each month, the debt will grow at a slower pace. And by paying off all of the interest each month, the debt will remain the same as the original loan amount, providing all interest repayments are met. 

Some people take out an interest-only lifetime mortgage and set aside some of their loan to make the interest repayments each month. The only issue with this is that it’s impossible to know how long the lifetime mortgage will last, and therefore how much you will need to cover all interest repayments.

» TAKE ACTION NOW: Find out how much equity you could release

How can a calculator help?

An interest-only lifetime mortgage calculator will help you to understand how much your lifetime mortgage loan will grow over time, and how making interest repayments each month will mitigate the growth rate of your debt. 

Is it accurate?

Interest-only lifetime mortgage calculators like ours above should only be used as a guide. Online calculators might not reflect the lifetime mortgage you’re offered, even if they’re found on the lender’s website. 

Things to consider

Equity release will involve a home reversion or a lifetime mortgage, which is secured against your property and will reduce the value of your estate and impact funding long-term care. Our equity release partner, Age Partnership provides a personalised illustration to explain the full details. The money you release, plus the accrued interest is then repaid when you die or move into long-term care. Advice is required before proceeding with equity release and any existing mortgage must be repaid. Age Partnership provide initial advice for free and without obligation. Only if your case completes would Age Partnership’s advice fee of £1,895 be payable. Other lender and solicitor fees may apply.