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

Ever wondered where the most reasonably-priced towns for families to buy are? Property company, Zoopla has identified the top 10 towns for families to live in the UK by looking at the most affordable towns, and how many people are looking in that area.

There was a 32% increase last year in 100% loan-to-value (LTV) mortgages which are mortgages that require zero deposit. According to a recent report by chartered accountants and business advisers, Lubbock Fine, the reason behind this is buyers simply struggling to save enough for a deposit.

Many people are quite private when it comes to what is in their bank account. In this short blog, we look into what Brits have saved by age group.

Research from buy-to-let lender, Landbay, shows that UK landlords are looking at raising rents ahead of the Renters' Rights Bill which is due to come into force this year.

Data shows landlords could miss out on green mortgages due to expired energy performance certificates.

Buying a house is a big deal, and where you are planning to buy will make a difference financially. In this short blog, we look at the most affordable and most expensive areas and how much you need to be earning to buy in there.

Equity release is a type of mortgage that allows homeowners 55 and over to access money from their property's equity without having to leave their home. This is done by securing a loan against the house which is usually repaid by selling the property when the borrower passes away or has to move into long-term care.

It’s important to ask questions about the property you are interested in before taking that step to make an offer. A little probing can make all the difference between buying your dream house or something that requires a lot of work.