UK Lifetime Mortgages
A lifetime mortgage is a loan taken out and secured against your home. The loan is repayable with interest when you and your partner (if it is a joint application) die or move into a permanent care facility.
The rate of interest charged on the loan is set at the start of the plan and will not change over the course of the agreement. The amount which ultimately must be paid back is the original loan amount plus accumulated interest up to the point your home is sold.
As interest continues to be added to the loan until it is paid back there is a possibility of falling into negative equity, especially if property prices fall. This is a situation where the proceeds of sale from the property are not enough the meet the outstanding debt.
Reputable providers of lifetime mortgages now offer a ‘no negative equity guarantee’; this means that the amount due for repayment will never be more than the value of the property. This is a must for anyone considering equity release and means neither your estate nor family will be left with a debt.
There are several different types of lifetime mortgage:
- A roll-up mortgage, which provides either a lump sum or regular income with interest added to the loan either monthly or annually. The amount you borrowed including the rolled up interest is repaid when your home is sold
- A fixed repayment mortgage, which provides a lump sum, but without interest. Instead, when your home is sold you pay the lender a higher amount than you borrowed. The amount is agreed in advance.
- An interest-only mortgage, which provides a lump sum in return for monthly interest payments of either a fixed or variable nature and return of the principal loan amount when your home is sold.
- A home income plan. This plan uses the money you borrow to buy a regular fixed income for life (an annuity). The income is used to pay the interest on the mortgage while you keep the rest. The amount originally borrowed is repaid when your home is sold.
There are advantages and disadvantages to each type of lifetime mortgage. The plan that best suits your requirement is something to be discussed with your adviser prior to taking out the loan.
When taking out a lifetime mortgage you can choose to borrow a lump sum or opt for a draw down facility which allows you to draw cash as you need it. A draw down option is a good idea if you only need small amounts on an occasional basis as it means you’re only paying interest on money you actually need.
If you feel that equity release may be right for you, or if you’d just like to know more you can call 0800 622 6724 or request a call back. One of our team will be able to discuss with you your circumstances, review your eligibility and if appropriate arrange an appointment for you with an adviser.