A lifetime mortgage is a loan made to older applicants which is secured on their home. You have the option not to repay it on a monthly basis but, instead, the interest can be rolled-up over the remainder of your life (or until you go into a long term care home), at which time the outstanding loan, including the compounded interest on the loan, is repaid from the sale proceeds of the property.
There are a variety of different types of lifetime mortgage to suit different people and a variety of needs. They are;
Lump sum Loan
This is the usual form of lifetime mortgage and it enables qualifying homeowners to raise cash from their home.
With a lump sum loan the interest charged is 'rolled up' over the full term of the mortgage (usually your remaining life). There's nothing to actually pay out for the rest of your life but interest is charged periodically and compounded year on year until you die (or move into a residential care home). For most lump-sum deals, interest rates are fixed at the outset.
Drawdown Facility
Some lenders offer a flexible lifetime mortgage, where you take a smaller lump sum at the outset, then draw down further borrowings as required. Since you pay interest only on the money you’ve taken, the overall cost can be considerably lower which may be of interest to those wishing to limit the reduction in net value of their estate (for example, where you have children to whom you wish to leave your estate).
Interest Repayment Option
The interest repayment option reduces the cost of the loan by allowing the borrower to pay off some or all of the loan interest over time. This effectively reduces the costs that will burden your estate when you die (as you pay them whilst alive) thus enabling a larger estate to be left to your children.
Enhanced Lifetime Mortgages
This is a more specialist sector, but the idea is that some providers offer more money to those with lower-than-average life expectancies. If you fall into this category, you might find that a larger lump sum is available to you.
The Risks Involved
For those of us with little or no pension a lifetime mortgage can be really useful. It enables us to stay in our homes for longer and yet benefit from the increases in value that most ‘baby boomers’ will have seen in their homes over the last 40 years. Of course, you are incurring a deferred debt which your estate will pay when you die.
The good news is that there are some protections in place if you take advice and deal with brokers and lenders that are members of the Equity Release Council. For example, the council requires that no loan and interest is ever to exceed the value of the home on which it is secured.
Later Life Lending from Mortgage Required is a way of accessing independent mortgage advice, they are members of the Equity Release Council.
For more information or to speak to a Lifetime Mortgage expert, contact us on 01628 507477.
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