Legal & General Home Finance has launched a new mortgage product to help older borrowers.
The Optional Payment Lifetime Mortgage aims to appeal to homeowners trapped between traditional lifetime mortgage and residential mortgages.
Similar to a traditional lifetime mortgage, the OPLM will offer a fixed interest rate for life and allow borrowers to stay in their home. It will also allow them to pay monthly interest, and to stop repayments at any time.
Legal & General said it should appeal to people looking for an alternative to roll-up lifetime mortgages who have some retirement income but not enough to qualify under residential mortgage affordability assessments.
Steve Ellis, chief executive of Legal & General Home Finance, said: "Customers with interest-only mortgages often feel let down by the mortgage market – they have always paid their interest but not longer qualify for a new mortgage because of affordability assessments or their age."
"OPLM is a direct response to growing customer need for a different kind of retirement mortgage, one that provide flexibility for borrowers and has the potential to address the interest-only shortfall that remains a fundamental issue for the mortgage market."
L&G said OPLM would provide the long-term security of a lifetime mortgage with the flexibility of a residential product.
Available to over 55s, borrowers will not need to pass an affordability assessment or have a capital repayment strategy in place to qualify for the loan and will be able to switch to an interest roll-up arrangement if they choose.
David Hollingworth, director at mortgage broker London & Country, said: "There’s a real focus on lending for older borrowers and equity release providers are recognising that homeowners wants the flexibility to repay interest where they can. This offers a hybrid approach of allowing the borrower to stop when it suits them and allow the interest to roll up.
"The introduction of retirement interest only mortgages by the regulator in the mainstream market and continued innovation in the lifetime mortgage market can only help to provide improved solutions for older borrowers."
More than 1.6 million borrowers still have an interest-only mortgage and many have no plan for how they will repay the capital at the end of the term.