What is a lifetime mortgage?
A Lifetime Mortgage is designed to provide a lump sum – some schemes may also provide the option of regular or ad-hoc drawdowns; all of which depend on your own personal circumstances. There are no repayments to make to the Equity Release provider – the interest is "rolled up" into the plan.
The interest could be set up on a fixed or variable basis and added to the loan either monthly or yearly. It is important to note that this is “compound interest” – so the interest will be charged on the original loan plus the interest already added.
If you choose to take a single cash sum at the outset, the amount that you owe can add up quickly. It is important to be aware of the repayment tables that are included within the Key Facts Illustration provided as part of the paperwork when considering taking out a Lifetime Mortgage, as these will give you an idea of how quickly the loan can build up and how this can affect any inheritance that you may wish to leave to your family in the future or additional monies you may want to utilise if Long Term Care may be needed.
The amount originally borrowed plus the interest is repaid out of the proceeds when the property is sold. This could be when you die or possibly move into Long Term Care, depending on your particular circumstances. Some Lifetime Mortgages will allow you to repay the mortgage earlier if you decide to move or downsize and it is important to ensure that any scheme you may consider accurately meets your personal requirements.
The amount that you are able to release from your property depends on your age(s) at the time, the open market value of your property and its type and condition. Options and availability will also vary between Lifetime Mortgage providers.
Applications can be made on a joint life basis or single life, depending on your personal circumstances. If the application were to be made on a joint life basis, the sale of the home to repay the proceeds would only be required once the second person died or moved into Long Term Care.
It is important to note that when you die the Lender may charge interest on the loan outstanding from the date you die until the mortgage is repaid. This could be quite some time if probate was delayed or the housing markets were negative at that time.
It is possible to receive a cash lump sum or smaller sums over time. These are known as “Drawdown Schemes” and may provide the flexibility of taking a smaller sum regularly or only when you need them. Interest would only be applied to the monies once they are taken, so this can sometimes be a more cost-effective option.
It is important to note that it is possible that the lump sum and/or income you receive from Equity Release could affect your entitlement to any means-tested State Benefits you may currently receive.Means-tested State Benefits could be assessed on your investments, assets, income or a mix of all three. We will review this as part of our advice process and highlight any potential issues to you. |
