How does it work?
A lifetime mortgage is a form of equity release scheme whereby a loan is secured against your property, providing you with a tax-free cash lump sum or a regular income to spend as you wish.
Although there are Lifetime mortgages where you pay the interest (and possible capital) as it accrues, commonly Lifetime mortgages are arranged on a roll-up basis, meaning that borrowers will not be required to make payments during the term of the loan, instead the lender adds the interest that accrues to the original loan amount. ‘Roll-up plans’ can be very useful but borrowers must remember that the amount of the mortgage debt can increase quickly due to ‘compounding’ – i.e. you will be charged interest on the original loan and any interest that is added to the loan account.
Interest is added to the lifetime mortgage loan throughout your lifetime, accruing at a fixed or variable rate. The loan plus interest is eventually paid back when the home is sold which could be when you move into long-term care, or when you and your partner die. Subject to your age you can typically release between 18-50% of the value of your home with a lifetime mortgage.
ADVANTAGES
- Choose a cash lump sum or regular income, typically with no monthly repayments to meet
- You still own your home so all growth in the value (if any, of course) belongs to you
- Loans with a 'No negative equity' guarantee are available
- Some plans enable you to guarantee an inheritance for your family
- Plans can be taken out as young as 55
DISADVANTAGES
- Inheritance amount will be reduced
- Interest rates may be higher than for normal mortgages due to the long-term nature of the loan.
- The amount owed on the loan can mount up quickly as interest is compounded.
- Early repayment charges may apply
- Tax position and certain state benefits will be affected
- You could raise a larger amount with a reversion plan, especially at a younger age
Please note: You can get interest-only lifetime mortgages wherein you pay interest monthly, but lifetime mortgages are mainly offered as 'rolled up' interest. 'Rolled up' interest is paid off altogether in one final payment along with the total amount of your loan when your property is sold, as described above.
