What are lifetime mortgages?
Lifetime mortgages are a way of using the value of your home to free up some spending money and are exclusively available to homeowners aged over 55.
Before you make any decisions, speak to your adviser; there is lots to consider before signing up. In fact, a specific qualification in Equity Release is required to advise on lifetime mortgages because they can be complex.
This means your usual adviser may not be able to help you, however, they will be able to point you in the direction of someone who can.
So, what is a lifetime mortgage and why would you want one?
A lifetime mortgage is when a homeowner takes out a mortgage using the equity within their home e.g. 25% of the value of the property. The amount you can borrow depends on your age and can be affected by your health too. As a general rule, lifetime mortgages are only available to people over 55 and you can borrow more the older you are. The money can be taken all at once or in smaller payments through a ‘drawdown’ option.
The way that a lifetime mortgage differs to other mortgages, is that the loan doesn’t need to be paid off until the homeowner passes away or moves into long-term care. As a result, unlike a standard residential mortgage, the size of the loan increases as interest builds up. However, lenders within the Equity Release Council offer a “no negative equity guarantee”, which means you (or your next of kin) will never owe more than the property is worth.
The longer the mortgage is in place, the more interest will be added and these mortgages can carry hefty early repayment charges should you wish to repay it early. There are some lenders who allow you to pay off some, or all, of the interest during the loan, which helps prevent the loan from increasing in size. Do speak to your Equity Release adviser about how interest works with lifetime mortgages, as they will be able to explain the risks and options in more depth.
Taking out a lifetime mortgage is a way to turn the equity within your home into money that you can spend during later life, for example on the holiday of a lifetime. It is something worth considering if you might be interested; however, you should also be aware that a lifetime mortgage will reduce the value of your estate, meaning less inheritance for your loved ones.
So, if you are interested in Lifetime Mortgages, speak to your adviser to find out your options.
Chris Browning CeMAP CeRER (Mortgage Director)
The Mortgage House