Over the past few years, an increasing number of people are opting for a lifetime mortgage as a way of bolstering their financial security in later life. In simple terms, it’s a loan that is secured against the value of your home that is repaid either when you go into long-term care or when you die, to free up some of the money you have tied up in it.
It’s the most popular type of equity release mortgage, as it gives you the funds to enjoy your retirement whilst still maintaining ownership of your home. You can opt for a plan that allows you to access the money as a lump sum, or you can access smaller amounts as and when you need to. You can also retain some of the value of the property to keep as an inheritance for your family.
Unlike standard mortgages, the interest on lifetime mortgages is charged on an increasing sum – as you aren’t making repayments, the interest on the loan is added to the debt on a continual basis. The majority of lifetime mortgages have a fixed interest rate – there are some variable-rate options out there, but they offer less certainty.
When you go into long-term care, or you pass away, your home will be sold, and the money will be used to pay off the loan. The leftover money will go to your beneficiaries, unless they can pay off the mortgage without having to sell the property. However, if there is not enough money left from the sale to pay off the loan, your beneficiaries will have to repay any extra above the value of the property. Most mortgages offer a no-negative-equity guarantee that promises that you or your beneficiaries will never have to pay back more than the value of your home.
The lending criteria for lifetime mortgages is relatively strict. There’s a minimum age – typically 55 or 60 – and the percentage of the property that you can borrow against is dependent on your age, as the older you are, the more you can borrow. There is also a minimum loan amount, and usually your home will have to meet a minimum value specification, although this varies between lenders.
It’s important to remember that there are drawbacks to equity release. It can be very expensive, which can affect what you can leave behind as an inheritance. There can be penalties if you end the deal early, as most schemes don’t allow you to pay off the loan. In some cases, it can also mean that you lose eligibility for means-tested benefits, such as council tax benefit or pension credit.
Although many people do find equity release highly beneficial, you need to be fully informed on the impact it can have on you and your loved ones, which is why our team of advisers can offer you impartial advice to help you decide if it’s the right decision – just give us a call on 0330 088 1494.