Lifetime mortgages are becoming more popular as a generation of people with all or most of their lifetime wealth tied up in their homes. Many have small or inconsequential pension pots and will be relying on the equity in their homes to sustain them in retirement.

Like the rest of us, those in retirement need somewhere to live and so a variety of equity release schemes have come to the market whereby homeowners may take mortgages for their remaining lifetime and in return they may release cash to help them live.

There are many advantages to this innovative financial instrument but there are also drawbacks. In particular, taking out cash now will mean it needs to be paid back later (with interest) out of the sale of your home after you die. If you have children, this will affect what they might expect to inherit.

In the past, borrowers would agree a lump sum and take it on day one. That sum would accrue interest and in many cases a good proportion of the cash released might end up sitting in a homeowners bank or savings account earning little or no interest and being devalued every year by inflation whilst at the same time interest on the lump sum drawn was accruing interest at an alarming rate.

The big advantage to the drawdown lifetime mortgage is that you only pay interest on the money drawn down. Most lenders will set a drawdown limit and then it’s simply a matter of applying for a cash drawdown as and when you need more cash. This saves interest that would otherwise be payable on the entire sum and has the additional benefit of reducing cash at hand in savings, meaning that you may still be entitled to various means tested benefits.

As with all mortgages specific terms will be dependent on the lender’s criteria and the borrower’s personal circumstances, so it’s always worth taking specialist advice before committing to any form of secured loan. At Mortgaged Required we offer details up-to-date advice on all the options available to homeowners looking to release cash from their homes in a prudent and cost effective manner.

Contact Mortgage Required to speak to a mortgage adviser on 01628 507477.

Related articles:

Download our Free First Time Buyers Guide

Recent posts

The chancellor will deliver her second budget this autumn. Due to slow economic growth and high inflation, the government need to manage a £40 billion shortfall in public finances. There have already been reports about changes to taxes including income tax and capital gains tax.

The chancellor has advised that landlords could have another tax to pay this autumn as the Treasury decide whether to extend national insurance contributions to rental income. 

According to a report in the Guardian, senior ministers have asked Treasury officials to look into a “proportional” property tax to see how it would work as an alternative to the existing stamp duty land tax on owner-occupied homes. 

More than a quarter of UK adults in long-term relationships (26%) have reported that despite living together, they keep their finances separate from one another.

There has been a rise in both rent and mortgage costs over the last three years, with renters seeing a greater increase in their monthly payments than those with a mortgaged property.

The new Delayed Start Mortgage launched by Skipton Building Society allows first time buyers to postpone the first three mortgage payments. This product has been designed to help soften the blow of moving in costs for first time buyers. 

Mortgage lenders are starting to recognise their “Green” responsibilities when it comes to the different products they offer. 

A recent study by Boon Brokers where 1,000 people who had used an estate agent over the last year were surveyed, showed that a whopping 52% said they were pressured into using the estate agents’ in-house mortgage broker.