A Lifetime Mortgage is similar to a traditional Mortgage – you borrow an amount of money against the value of your home, with you remaining the owner. The amount you can borrow is based upon your age and the value of your home .
Rather than making a monthly payment, the interest cost is normally added to the loan each month or once a year, and over time the interest will increase the amount borrowed. However, the trade-off is that you wouldn’t need to make a monthly payment to the mortgage and you keep ownership.
You could also select to make the interest payments each month (in part of full) if you can afford to do so. This would mean you retain more equity over time, and a great way to ensure you leave a legacy to your family or beneficiaries.
The Mortgage is repaid on the death of the last surviving owner, or when they are in Long-Term Care. The property is typically sold at that time, with the mortgage repaid and any residual value forms part of the estate. You can guarantee an inheritance subject to the amount you wish to borrow / property valuation.
By definition there is no end date to the mortgage, so the facility will continue for an unspecified period of time.
Subject to age, property valuation and the mortgage balance, you may be able to borrow more in the future – or you could look to sell your home, and buy a smaller (or cheaper) property.
So for many clients, the ideal use of a Lifetime Mortgage is to provide a Tax-Free lump sum that will give enjoyment and benefit, at a time you can fulfil dreams and aspirations in later life.
There are a number of features available within Lifetime Mortgages, giving you an element of flexibility and further options you can consider in a few years’ time.
One of the main considerations is that the money you take out via a Lifetime Mortgage is free of any initial tax. Depending on what you do with this money, there may be some tax payable – for example if you use the cash to invest in the stockmarket or a deposit account, any income generated may be taxable.
Rather than having to take all of the Tax-Free cash in one amount, many of the Lifetime Mortgages allow you to take a lump sum and futher money when required, in a pre-approved faciliity (Drawdown). This means you don’t pay interest on some of the money until you need to use it, significantly reducing the overall costs of a Lifetime Mortgage.
Another way of reducing your cost is to make some additional payments, up to any limit provided within the Lifetime Mortgage. This will reduce what you owe, and reduce the interest costs over time as well.
Many lenders will provide some form of guarantee scheme, to ensure some money is made available for an inheritance. This may limit the amount you can borrow through a Lifetime Mortgage.
You can also look to move home in the future, perhaps to downsize if your home is too big, or you might want to release some of the equity in the property. You may be able to repay the Lifetime Mortgage in full, or transfer the Mortgage to the new property if acceptable to the lender.
Subject to age, property value and the outstanding Lifetime Mortgage balance, you may be able to borrow additional money from the lender.
The amount you can borrow compared to other schemes (such as Home Reversion) is lower, as you do keep ownership of the property and benefit from other features already mentioned.
Any Lump Sum taken may affect your qualification for benefits, especially those that are means-tested.
Lifetime Mortgages are designed as a long term committment, therefore there will be extensive Early Repayment Charges if you look to repay the mortgage early, typically within the first 10 years. Check the illustration for more details.
Lifetime Mortgages are a popular way to release a Tax-Free Lump Sum from your current home, typially becuase you have a number of ‘Flexible’ features that give you options in later life, whilst you retain ownership of your home.
The money released through a Lifetime Mortgage can be used for a multitude of reasons, ultimately to help you and your family financially, as well as some lifestyle choices.
Such products are changing and developing on a regular basis, so please ask to review your situation and needs, and we can ensure that you get the right advice about your Equity Release needs.