What is a lifetime mortgage?
Lifetime mortgages are the most popular type of equity release plan. They work by giving homeowners access to the value, or ‘equity’, tied up in their property.
Unlike a conventional mortgage, which runs for a fixed term, a lifetime mortgage is designed to run for the rest of your life. During this period, the property remains 100 per cent in your name, and you are free to live there until you die or move into flong-term care. This could be a great alternative if you don’t want to move or downsize your property.
How does a lifetime mortgage work?
As the name suggests, a lifetime mortgage works by lasting the course of a homeowner’s life. Traditionally, no repayments are made on the mortgage until the death of the last surviving borrower, or their move into long-term care. Having said that, many lifetime mortgages now offer the option of month-to-month payments, or voluntary repayments to control the interest accruing.
Interest typically compounds or ‘rolls up’ on a lifetime mortgage, and, thus, increases over time. Any proceeds left after repaying the lifetime mortgage provider is then passed onto your estate and distributed to your beneficiaries.
Payments from lifetime mortgages are flexible, too. You can decide whether to take the cash as a lump sum or in several smaller chunks known as ‘drawdown.’ In both instances, the money released is tax-free and you are only ever charged interest on the amount you withdraw.
How much can I borrow with a lifetime mortgage?
Each lifetime mortgage provider will have their own rules on how much their lifetime mortgage plan will release. The maximum lifetime mortgage facility is based upon the following criteria:
- Age of the youngest homeowner (minimum age is 55)
- Valuation of the property (minimum value is £70,000)
- Health and lifestyle of the homeowner(s). If you have a qualifying medical condition (or conditions) you can potentially borrow more.
To find out how much equity you could release, try our lifetime mortgage calculator, below. Remember, this is purely a guide to the maximum release available. To find out the actual release of equity to meet your needs, you should speak to your local Equity Release Supermarket adviser.
What are the different types of lifetime mortgage?
The popularity of lifetime mortgages has increased substantially due to the flexible add-on features these plans can have built into them.
The ‘core’ lifetime mortgage product is a basic roll-up plan, where a lump sum of tax-free cash is taken and typically no repayments are made. The resulting balance effectively grows (compounds) over time, but can be offset somewhat by the potentially increasing value of your property.
There are several types of lifetime mortgage, all of which offer a range of features that can be tailored to meet your individual needs.
Enhanced lifetime mortgage
These type of lifetime mortgages are based on health and lifestyle factors and if you qualify, allow you to borrow more money, or offer a lower interest rate. In both instances, life expectancy is used to calculate the maximum release of equity, or what the lower interest rate will be. Read more
Drawdown lifetime mortgage
Drawdown facilities provide a cash reserve facility from which the homeowner can take cash withdrawals as and when required. Read more
Interest-only lifetime mortgage
The option of monthly repayments reversed the mechanics of traditional equity release schemes. Interest-only lifetime mortgages allow customers to repay the interest and maintain a level balance. Read more
Voluntary repayment plans
This is a recent innovation which enables ad-hoc repayments. These types of plans allow payments of up to 15 per cent of the original amount borrowed each year with no penalty. Read more
These are lifetime mortgage schemes. To understand their features, benefits and risks, please contact Equity Release Supermarket for a no obligation, personalised, key facts illustration. All quotes can be tailored to your own circumstances and you are under no obligation to proceed.