A lifetime mortgage allows you to take out a loan that is secured against your home but which isn't repaid until you go into long-term care or you die. It works by releasing some of the equity that is tied up in the property, allowing you to remain living there.
How does it work?
When you take out a secured lifetime mortgage against your home, you will be able to carry on living there. It must be your main residence in order to take out this type of mortgage. There is an option to ring-fence part of the property's value, to provide an inheritance for your family. Some lifetime mortgage providers offer bigger sums to customers who smoke, or have other lifestyle habits that are perceived to be risky, or who have pre-existing defined medical conditions.
Because your home will still belong to you, you will need to maintain it and keep it in good condition as a condition of the mortgage. The interest is charged against the sum borrowed, which can be added to the total mortgage amount or repaid.
What happens when I die or move into long-term care?
At this point, the property will be sold, and the loan will be repaid using the proceeds of the sale. Any remaining money goes to the beneficiaries named in your will as part of your estate. The estate can also choose to pay off the mortgage without selling the property. If the sale leaves a shortfall in funds, your beneficiaries pay the extra (exceeding the property's value) from the estate.
Guarantees
Many mortgages of this kind offer a no-negative equity guarantee. This means that you, or the beneficiaries named in your will, will never be required to pay back any more than the property's value - even if the debt ultimately exceeds the value of the property.
The two types of lifetime mortgage
The first type is called an interest roll up. You are paid a regular fixed amount or a lump sum and are charged interest on the loan, which is added to the loan. This avoids the necessity of making regular payments. The principal amount borrowed and the interest is repaid when the property is sold at the end of the mortgage term.
The second type is interest paying. Here, you still get the fixed sum or regular payment, but make ad-hoc or monthly interest payments to prevent interest from 'rolling up.' Some mortgages of this type will also allow capital repayments too.
What type of payment?
You can choose to borrow on a flexible drawdown basis for occasional or regular small cash sums to supplement your main income, or borrow a lump sum at the beginning of the mortgage term. Either way, you will pay interest on these borrowed sums.
Is a lifetime mortgage right for me?
This will depend on the borrower's individual circumstances and age. There can be tax implications and other considerations, so - as with all mortgages - it is recommended that you seek professional advice from a financial adviser to help you make the right decision.
A lifetime mortgage is not suitable for everyone and may affect your entitlement to means tested benefits, so it is important to seek financial advice before taking any action. If you are considering releasing equity from your home, you should consider all options available before equity release.
The interest that may be accrued over the long term with a Lifetime Mortgage, may mean it is not the cheapest solution. As interest is charged on both the original loan and the interest that has been added, the amount you owe will increase over time, reducing the equity left in your home and the value of any inheritance, potentially to nothing.
Although the final decision is yours, you are encouraged to discuss your plans with your family and beneficiaries, as a Lifetime Mortgage could have an impact on any potential inheritance. We would also encourage you to invite them to join any meetings with your Financial Adviser so they can ask questions and join in the decision, as we believe it is better to discuss your decision with them before you go ahead. Please note that this is a referral service.
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