Lifetime Mortgages Explained
As the name suggests these schemes are mortgages secured on a property and designed to run for the life of the holder. Full repayment of the loan is only required if you (or the last of you to leave if there are joint borrowers) vacate the property for any reason, pass away or move into long term care.
The loan can be in the form of a single lump sum or an initial sum with ad-hoc drawdowns of smaller amounts. Interest is only charged on the amounts actually released to you. Interest is added to the loan monthly or yearly and depending on the plan and in many cases you are not required to make any repayments during your lifetime. Some borrowers prefer to pay the interest and more plans are now available which allow this on a non contractual voluntary basis. The eventual debt including rolled-up interest (if any), is repaid from the sale proceeds when the house is sold with any surplus funds from the sale returning to your estate or beneficiaries.
Interest Paid Schemes
As mentioned above, this type of mortgage allows borrowers to meet some or all of the monthly interest payments. In this way the debt can either remain constant if all of the interest is paid, or the rate of debt increase can be slowed down if only part of the interest is repaid. These types of equity release plans are particularly useful for those people who are reaching retirement with an existing ‘interest-only’ mortgage for which they do not have a sufficient funds or assets with which to repay the loan. They can transfer the debt to a lifetime arrangement and never have to worry about a fixed repayment date. Additionally, if the repayments become unaffordable (for example if one of a couple dies and their income dies with them) the loan can instantly be switched to a ‘roll-up’ of interest from that point, again for life at no additional cost or change to the terms of the plan.
Drawdown Lifetime Mortgage
This is similar to a Lump Sum mortgage but with added flexibility. The cash can be released over a period of time to suit you, as and when you need it. Because you only accrue interest on the funds once you have taken them, this can reduce the amount you pay over time (when compared with a lump sum). It provides you with the great flexibility of only having what you need when you need it and stops you from accruing interest unnecessarily.
How much can you borrow?
The total loan amount available will depend on your age(s) at the time of arranging the scheme and the property value as assessed by a qualified surveyor acting for the lender. The older you are then the less time there will be for the debt to rise significantly, and hence the greater the loan facility offered. There is often no difference in the amount you can raise whether you are a man or a woman but if there are two of you the loan is based on the age of the youngest borrower. In some cases, your state of health can be taken into account. If you suffer with or have suffered from a life limiting illness, and your life expectancy is shortened then some lenders may consider allowing you to take a larger loan than would otherwise be available, as they can statistically expect the loan to be repaid more quickly than normal. For approximations of how much you might be able to borrow, please complete the instant equity release calculator.
Protecting some of the equity for beneficiaries
If you wish to guarantee that at least some part of your home value is left to children or beneficiaries, then some schemes allow you to protect a given proportion of the initial value. For example, if you protected 10% of the value of your home, then the total debt would never exceed 90% of the value at any time in the future. When you leave the property and it is sold, you or your estate will get at least 10% of the net sale proceeds.
The choice of scheme needs to be tailored to your needs, and research can be complex. Please contact us to discuss your particular requirements, we can then arrange to meet you for a no-obligation chat at our expense.