With a lifetime mortgage, you take out a loan secured on your home which does not need to be repaid until you die or go into long-term care. It frees up some of the wealth you have tied up in your home and you can still continue to live there.
Lifetime Mortgage – Roll Up Interest
Many Lifetime Mortgages are required for a specific purpose and sometimes for a specific amount. You can choose to take a lump sum or you can take a lifetime mortgage with a drawdown facility.
The typical ‘Drawdown’ Equity Release Plan allows you to take a relatively small initial lump sum of say £10,000 which is paid free of tax and can be spent as you wish. At the same time, a ‘Cash Reserve’ is set up for an amount of your choice, subject to the provider’s maximum. This is similar to an overdraft. You don’t have to use it and most providers don’t charge anything if you don’t use it.
You will usually have a telephone number to call to release funds direct to your bank. Some people use the reserve as a regular income, paid when required to boost their pension. Others use it ad hoc, for holidays, to replace the car or for emergencies.
As the release of funds is spread over time, they are far more cost effective than traditional schemes where one would release a large sum of money in one go, only to end up placing it in a Building Society.
No repayment of the loan is required during your lifetime. Instead, interest (which is normally a fixed rate for life) is charged on the amount borrowed and added to the loan throughout your lifetime.
The loan plus any interest is only repaid after your death, from the sale proceeds of your property.
With most equity release plans you remain the full owner of your property and the lifetime contract guarantees that you can remain in your home regardless of how long you live or what happens to property prices.
Lifetime Mortgage – Interest Payment
There are options to take a lump sum payment and pay the interest on a monthly basis to prevent the amount borrowed growing further. These rates are generally fixed for life at the outset to enable you to budget for the monthly payments.
If family members wish to pay the monthly interest this is allowed and if there comes a point when you choose not to pay the monthly interest or find that you cannot pay the interest, then the lifetime mortgage would allow the interest to be added to the loan at that time for the remaining term of the mortgage.
This enables the lender to guarantee that you would never lose your home due to missed payments or changed financial circumstances.
For those who would like to guarantee inheritance for their loved ones, the ‘Protected Equity Guarantee’ available on some plans will ensure that a fixed portion of your property’s value is protected and left in your estate for your loved ones.
As these plans are now under the protection of the Financial Conduct Authority as well as the industry body the Equity Release Council, they are also safer than ever.