What Is A Lifetime Mortgage?
The lifetime mortgage range of equity release schemes have proved the most popular form of equity release scheme for a reason – flexibility.
A lifetime mortgage is a loan that is secured against your property. In return for this security, the lifetime mortgage company will provide you with a tax-free lump sum or income, dependent upon your financial requirements. You continue to own the property 100% and remaining living there for the rest of your life.
To determine the amount you can borrow, the lifetime mortgage providers will take into account your age and property value. The calculations are simple; the older you are the more you can release. Lenders work on the premise of life expectancy and therefore can actuarially calculate the average term of an equity release plan.
The repayment of the lifetime mortgage scheme is made after the last person owning the property has died or moved into long-term care. At that point, the executors of the estate will be responsible for selling the property which they usually have 12 months to effect. The sale proceeds will then go towards repaying the original capital borrowed, plus accumulated interest. Any remaining funds pass into your estate & distributed in accordance with your Will.
Lifetime Mortgages UK
The most common form of lifetime mortgage is the Roll-Up Lifetime Mortgage, whereby NO monthly repayments are made to the equity release provider. This means interest will roll-up & compound over the rest of the mortgage term. The effect of this is significant. By allowing interest to roll-up & compound each year will ultimately reduce the value of your estate and any subsequent inheritance to your children.
Fortunately, there are new equity release solutions available, including the option of paying back the interest only element. This helps maintain a level balance over the remainder of the term. These interest only lifetime mortgage schemes have proved popular with retirees having good disposable incomes & wish to conserve their beneficiaries inheritance.
Taking this one step further, we now have a lifetime mortgage whereby not only can the interest be repaid, but also upto 10% per annum of the original capital borrowed. The Hodge Flexible Lifetime Mortgage Plan has been introduced with flexibility in mind. By allowing upto 10% of the interest to be repaid each year, you can effectively take out a ‘capital & interest’ lifetime mortgage scheme.
Pros and Cons of Lifetime Mortgage Plans
Before making any decision about which equity release scheme is best for you, always consider the advantages or disadvantages. For this reason Equity Release 2go>> have compiled a list of pros and cons of lifetime mortgage equity release loans: –
Lifetime Mortgage Pros
>> No Monthly Payments – ideal if you wish to capital raise with no effect on monthly budget
>> Scheme Criteria – Plans start at age 55, with some schemes having no maximum age limit
>> Flexibility – Cash can be taken in the form of drawdown payments or as a single lump sum
>> Safety Features – options available to guarantee a percentage of the final property value
>> Fixed Interest Rates – knowing interest rates are fixed from outset, helps future planning
>> Ownership – 100% ownership of the property is retained, thus benefitting from any escalation in future property value
Lifetime Mortgage Cons
>> Inheritance Reduction – interest will mount up reducing your beneficiaries inheritance
>> Early repayment Charges – if the mortgage is settled early then large penalties could apply
>> Maximum Release – lifetime mortgages can’t usually raise as much as a home reversion
>> Additional Funds – with static property values, borrowing further funds may be prohibitive
>> Means Tested Benefits – eligibility for means tested benefits such as pension credit and council tax benefit can be affected by releasing equity
Types of Equity Release Lifetime Mortgage
Within the lifetime mortgage product range are even more flexible equity release schemes, designed to meet the increasing demands of mortgages for pensioners.
>> Drawdown Lifetime Mortgage – providing a flexible approach to the releasing equity a drawdown plan will provide you with an overall cash facility. You can then decide how to withdraw this money. This is achieved by calculating how much you need initially, with any remaining funds being taken in stages, whenever required, over the remaining mortgage term.
>> Enhanced Lifetime Mortgage – the enhancement provided is based on a health and lifestyle questionnaire. Like annuity plans, poor health can result in a larger lump sum than normal. This is based on the fact that if an impaired life does exists, then life expectancy actuarially will be shorter, enabling the lender to release more tax free cash upfront.
>> Interest Only Lifetime Mortgage – ideal for those with good retirement incomes and who wish to protect their children’s inheritance. By having the facility to pay off the monthly interest charged, interest only lifetime mortgage companies provide no fixed repayment date and help the mortgage balance remain level for the whole mortgage term.
Further reading on each of these lifetime mortgages can be found on the following pages: –
Remember, your local and qualified lifetime mortgage adviser is just one phone call away. Call 0800 011 9841 today!
To understand the features and risks of an Equity Release plan please ask for a personalised illustration. Lifetime Mortgages are now regulated by the Financial Conduct Authority.