Lifetime Mortgage is a famous equity release plan. It gives the homeowners access to the value, which is tied up with their property. Unlike the conventional mortgage that is created for a short and fixed period, a lifetime mortgage is planned to run for the entire lifetime of the homeowner.
After signing your property for the lifetime mortgage, it still remains in your name. You are also free to live there until you go for long-term care or die. So, this is a great choice if you don’t want to sell your home or looking for downsizing it in an unfavourable market.
What is lifetime mortgage
A lifetime mortgage is when you borrow money secured against your home, provided it’s your main residence, while retaining ownership.You might be able to ring-fence some of the value of your property as an inheritance for your family. A lifetime mortgage is a type of equity release, a loan secured against your home that allows you to release tax-free cash without needing to move out.
How does Lifetime Mortgage Work?
Your property is considered under a lifetime mortgage when you obtain a huge amount of money secured against your property. You can have it as your foremost residence while keeping your ownership intact. Furthermore, you can select to ring-fence against some of the value of the entire estate as a legacy for your family.
In addition, some providers may offer a greater amount to those with a certain medical condition. But, your apartment still belongs to you and you are responsible to maintain it. Also, the interest is charged on the amount you borrowed can be added or repaid on the total amount of loan.
All your remaining property then goes to your beneficiaries. If your property can pay off the mortgage without marketing the estate, then you can opt for that. However, if there is insufficient money left over from the sale, then the beneficiaries will have to pay the extra cost above the value of your apartment from your property.
To protect your property against this, most of the lifetime mortgage plan provides a no-negative-equity guarantee. With this, the lifetime mortgage provider ensures that you will never have to pay more than the value of your apartment.
So, it remains the same if the debt has become larger than the value of your property.
Know the Various Types of Lifetime Mortgage
Lifetime mortgage becomes popular due to its flexible add-on features. There are different types of lifetime mortgages. All of them come with various features that can be used to satisfy your specific financial requirements.
Core Lifetime Mortgage:
It is a basic roll-up scheme, where an amount of tax-free cash is taken and no compensations are offered. In this plan, your resulting balance grows gradually over time. But, with the increasing value of your estate, it can be an offset.
Roll-up Lifetime Mortgage:
With this plan, you will get an amount with no monthly payments. The interest and the cash is paid off by selling your apartment when you go into long-term care or after your death.
Drawdown Lifetime Mortgage:
With this scheme, you will get the versatility to withdraw your fund over time instead of taking it as a fixed amount. You can take your cash whenever you need it and the interest will be charged only on the amount you have withdrawn.
So, if you think that you will need more money in the upcoming days, then it is the best option for you.
Flexible Lifetime Mortgage:
In this scheme, you will be able to make voluntary payments to bring down the equity release mortgage loan amount. Like any other equity release mortgage scheme, here, you will also get the amount and hold the ownership of your estate.
Enhanced Lifetime Mortgage:
This plan is only for them who have certain medical problems. It lets you unlock a higher amount for your estate. Furthermore, you may get a higher lifetime mortgage rate as well.
Interest-only Lifetime Mortgage:
This plan allows you to access a cash lump for your home. But, in this plan, you only have to pay a certain amount of interest per month instead of paying interest over the years. So, it can help you to decrease the amount required to return the equity release mortgage from the sale of your estate when you die.
There are various equity release mortgage options, so, it is recommended to consult with an expert advisor. They will discuss different options that can help you to decide what is the best scheme for you.
What do you Mean by Lifetime Mortgage Rates?
The interest rate of the lifetime mortgage depends on various factors like which plan to select and its time period. So, you can select either a fixed or variable life interest rate while choosing a lifetime mortgage plan.
Whereas, most people go with the fixed rates, as you can see exactly what you are being charged for. Besides, the variable-rate plan offers an initial lower rate, which may raise over time.
With all the mortgage providers who are authorized by the ERC (Equity Release Council) of the UK, it doesn’t matter how much assets you release from your property. They always ensure you never get more than the worth of your estate.
What does a Lifetime Mortgage Plan Cost?
Before selecting a lifetime mortgage plan, you need to be aware of the costs of it. If you take any lifetime mortgage plan, then you might have to pay:
- Valuation and legal fees
- Building insurance
- Arrangement charges to the provider for the mortgage plan
- Advise fees to the advisor
- Completion charges at the time of fulfilment or added to the lifetime mortgage plan
These charges might increase up to £1,500 to £3,000. Moreover, there is an extra charge for paying off the loan early. It is known as ‘Early Repayment Charges’ of the lifetime mortgage.
Is Lifetime Mortgage a Right Choice for you?
Mostly, it depends on your personal situations and age. Here are some of the important factors that you need to consider while thinking about lifetime mortgaging:
- It may affect what you leave as an inheritance for your beneficiaries.
- With the interest-only lifetime mortgage, the total amount you obtain will increase fast. That means you will get more than the worth of your estate unless your plan has a no-negative-equity guarantee. So, ensure that your lifetime mortgage plan includes such a guarantee.
- A plan that has variable interest rates might not be appropriate, as the rate of interest rises significantly. However, one of the ERC standards states that there is an upper limit cap if the rate of interest is variable.
- The lifetime mortgage may affect your entitlement and tax position to means-tested advantages. So, providers will expect that you’ll maintain your estate properly within the framework of reasonable maintenance.
If these points could be a problem for you, then the lifetime mortgage equity plan is not appropriate for you. Otherwise, there are many benefits to receive a stable income by applying for a lifetime mortgage.
Advantages of Lifetime Mortgage
There are several benefits you will get by choosing a lifetime mortgage plan. Some of them are:
Flexibility is one of the biggest advantages of lifetime mortgage. As an example, some scheme lets you take as low as £10,000. Moreover, it is tax-free income and leaves more amount in savings when you withdraw it.
Whatever be the plan you select, your estate remains yours. You will be just given some money against it throughout your lifetime.
Make your Home Improvements:
If you have a dream of a new conservatory, bathroom, or kitchen, it will give you the amount to get your apartment just the way you want.
Furthermore, when you have reached the stage of your life when certain changes are required, it can make your apartment more accessible. The fund you exempt from the equity release mortgage could go towards making the necessary changes.
Boost your Income:
If your pension or saving is not enough for you to enjoy a comfortable life, then a lifetime mortgage plan can help you to make your life comfortable by increasing your income. The cash you get from it can help you to live a worry and hassle-free retirement life.
Queries to Ask your Advisor Regarding a Lifetime Mortgage
Always try to ask the below questions to clear everything about lifetime mortgage:
- Can I transfer the plan if I move the apartment?
- How would the plan affect my local or state authority benefits?
- What happens if I die soon after taking a lifetime mortgage plan?
- What charges I have to pay if I want to return the loan, say after 2 years?
- Would I fit for a grant to support me pay for home alterations or repairs?
- What happens if I end up owing a higher value of my estate?
- What limitations does the plan put on me when I start living in my apartment?
It is recommended to find a national debt lines advisor who is registered by FCA and also specializes in the lifetime mortgage in the UK.