How to use a lifetime mortgage
Lifetime mortgages can provide money for your retirement without the headache of making regular repayments.
This type of equity release scheme gives you a cash lump sum now, or regular income for the rest of your life, and you don’t have to worry about making monthly repayments.
How do lifetime mortgages work?
Lifetime mortgages help you make use of some of the equity locked in your home by taking out a loan secured on it. Remember, this is a loan and interest is charged on it. But it is accumulated over time and is not repayable until you die or move into long-term care, which is when your home will usually be sold. When this happens, the capital and the interest are repaid in one lump sum from money raised from the sale of the home.
Equity release charges
Lifetime mortgages are a lifetime commitment and if you change your mind you may have to pay a substantial Early Repayment Charge. However, be aware that lifetime mortgages don’t tie you to one property and you can move home (subject to the new property meeting the company’s lending criteria). However, if you move to a lower value property you may have to repay some or all of the total loan and interest. The amount you can borrow depends on the value of your home and your age.
It always makes sense to speak to an independent financial adviser before signing up to a lifetime mortgage,or indeed any kind of equity release product, and it can also make sense to take legal advice. Most people also choose to involve or inform their family.
Equity release will have a major impact on any inheritance you were hoping to leave. You may wish to discuss the implications with your family. A lifetime mortgage is a loan that doesn’t have to be repaid until you die or need to move into long-term care, which is probably when your home will be sold. But, it is your home, so make sure you know exactly what is involved and how it will affect the plans you already have in place.
For instance, if you receive means-tested benefits, you could find the cash injection you get from a lifetime mortgage may make you ineligible for further benefits.It is always important to speak to a financial adviser and take legal advice before you sign on the
No negative equity guarantees
One concern among potential lifetime mortgage customers is that, should property prices fall, they, or their family, may be left owing more than the value of the home and have to find more money to pay off the loan and interest.
Therefore, most lifetime mortgage providers have a no negative equity guarantee included in their plans. This means that no matter what happens to property prices, your family or estate will never be left with a debt that cannot be repaid by the sale of your property, providing peace of mind for you and your family. And this is an important point.
Questions to ask an adviser:
How will taking out a home reversion affect your income tax position and your eligibility for state or local authority benefits?
What conditions does the home reversion impose on you for continuing to live in your home?
If you want a regular income how will you achieve it? Will the income be guaranteed? Will it be fixed or variable? How often and for how long will it be paid?
Can you transfer the home reversion scheme if you want to move home?