A Lifetime Mortgage is an Equity Release scheme that allows those over age 55 to release cash from the equity of a property they own while continuing to live there, meaning they don’t have to sell or downsize.
With a lifetime mortgage, this involves taking out either an initial lump sum in the form of a mortgage or alternatively you can draw from a pre-agreed facility, all by using your home as security, just the same as a normal mortgage.
There are two main types of Lifetime Mortgages:
- An Interest Only roll up scheme.
- An Interest Only serviced scheme.
There is also an option to have a combination of part Roll-up of interest & part serviced payments.
Interest only ‘Roll-up’ scheme
An Interest Only roll up does not require the property owner to make monthly payments. However, it will result in a larger amount of compounded interest being added to the mortgage balance.
Most of the products on the market now offer a ‘no negative equity guarantee’, to ensure any beneficiaries aren’t left with an unexpected huge payment to make if the house does sell for any less than the outstanding balance owed on the loan.
Interest only – ‘serviced’ scheme
An Interest Only mortgage does include a monthly payment of just the interest, without need to service any capital element of the loan.
Most schemes offer a fixed rate of interest for the entirety of the term, which in turn will provide financial certainty to those making payments, paying the same amount every month. As a result, the amount borrowed does not increase over time, as the interest is paid each month, and no equity value in your home will be eroded.
The money released by a Lifetime Mortgage can be used for a range of purposes. Common uses include helping adult children to buy their own first home, paying off other debts, or just to provide you with an additional income on top of any other pension provision or savings to be used in retirement. It is worth noting that certain state benefits can be affected by the money received from a Lifetime Mortgage, which could result in a reduction of any payments being received or making the property owner ineligible altogether. Furthermore, if a property owner does decide to move, the move will need to be approved by the Lifetime Mortgage provider.
A Lifetime Mortgage advisor can help with choosing the correct product and package for each client after taking in to account their broader financial situation and what they want to get out of the scheme.
David Williams Mortgage & Insurance Services Ltd provides mortgage and insurance advice. We help property owners make the right decision for their retirement. To find out contact us or give us a call on 01604 250280.
A mortgage is a loan secured against your home. Your home may be repossessed if you do not keep up repayments on your mortgage. Check that this mortgage will meet your needs if you want to move or sell your home or you want your family to inherit it.
This is a lifetime mortgage. To understand the features and risks, ask for a personalised illustration.