A lifetime mortgage is a long-term loan secured against your property. It is only repaid when your property is sold; either when you and your partner have both passed away, or move into long-term care.
Usually a lifetime mortgage has a fixed interest rate. If you take the money in one lump sum, interest accrues on the full amount from the day you borrow it – regardless of when you use the money. If you don’t need all the money straight away you could consider a drawdown plan, which could save you thousands in interest.
How does it work?
- You retain full ownership of your home
- This plan enables you to take a tax-free lump sum from your property
- There are no payments to make, as the loan, plus roll up interest, is repaid when the plan come to an end
- The interest typically accrues, then rolls up and is added to the loan. This is called compound interest
- Some plans allow you to guarantee an inheritance to your loved ones
- Your estate benefits from any house price rises that are over and above the amount you owe the loan provider
- The money can be used for any purpose and can cover specific expenses such as home improvements or to pay university fees
Things to consider
- You don’t know how much of your property value will be left to your beneficiaries, but you may be able to guarantee a percentage of the value as inheritance
- The loan provider has a first legal charge against your property – when the property is sold, the loan and interest will be paid to the provider and the surplus goes to your estate
- Early repayment charges may apply if you decide to repay the loan
- If you did want to release further funds you’d need to go through the application process again
- A lifetime mortgage will reduce the value of your estate and may affect your entitlement to state benefits
The different types of lifetime mortgages
Drawdown lifetime mortgages work in the same way as lifetime mortgages but you can then choose to ‘drawdown’ the cash in stages as and when you want to.
If you or your partner have any qualifying health conditions or make certain lifestyle choices you may be able to release more money from your home.
If you want to guarantee an inheritance for your family this is possible with some lifetime mortgages.
Flexibility within lifetime mortgages means that Key, as impartial advisers are best able to assess how you could benefit from a combination of these options to not only save your estate money but also tailor your plan to your current and future needs.
Interest payment plans
Interest-payment lifetime mortgages work in the same way as a lifetime mortgage, however you are able to make regular payments on the interest that accrues over the lifetime of the loan.
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If you’re looking to find out more about a lifetime mortgage or your alternative options, you can download a free equity release guide today.
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If you are considering equity release we recommend that you read is it right for you?