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.
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