What is a Lifetime Mortgage?
A lifetime mortgage is the most popular type of equity release scheme which is designed to run for the lifetime of the homeowner. It is a mortgage that is secured upon your home with the amount borrowed being calculated using the age of the youngest homeowner and the valuation of the property.
Lifetime mortgages traditionally require no repayments, thus the balance would compound monthly or yearly and increase over time. However, lifetime mortgages UK now exist that facilitate making repayments, whether monthly or ad-hoc, which have the effect of being able to stop the roll-up effect, or even reduce the balance.
Final repayment of a lifetime mortgage is usually derived from the sale of your home once the last person has died or moved into long term care. Any proceeds left after repaying lifetime mortgage providers is passed into the estate and distributed accordingly.
Why Apply For A Lifetime Mortgage?The main purpose for taking a lifetime mortgage would be to release equity from your property and spend the proceeds as you wish. This could be for a multitude of reasons to enhance your standard of living. The property itself remains 100% in your own name with the lender taking a 1st legal charge.
Lifetime mortgage plans are now versatile enough whereby you can ring-fence a percentage of your property for your beneficiaries inheritance. Such inheritance protection options are now built into certain plans. Other methods of inheritance protection surround the management of the balance using flexible repayment techniques.
Lifetime mortgage schemes now exist that allow either monthly or voluntary repayments which stop interest roll-up by making repayments back to the lender. Interest only lifetime mortgage schemes require monthly payments by direct debit to maintain a level balance. Additionally, newer plans include partial repayment options which allow upto 10% per annum repayments, effectively leveling or reducing the mortgage balance over time.
How Much Can I Borrow With a Lifetime Mortgage?Each lifetime mortgage company will have its 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) – poor health = higher lump sum
To gain an understanding of how much equity can be released yourself, then Equity Release Supermarket provide a handy Lifetime Mortgage Calculator. Remember this is purely a guide to the maximum release available and should be used for guidance purposes only. To ascertain the correct release of equity for your requirements then you should seek lifetime mortgage advice from your local equity release adviser.
What Types of Lifetime Mortgage Exist?The popularity of lifetime mortgages has increased substantially due to the flexible ad-on features these plans can have built within them. This has been at the expense of the home reversion plan which never embraced such adaptations, thus is now virtually extinct in the equity release marketplace.
A core lifetime mortgage product is a basic roll-up plan where an lump sum of tax-free cash is taken and no repayments are made. The resultant balance effectively grows over time, but can be offset somewhat against the potentially increasing value of the property.
Features which can now be incorporated into lifetime mortgages are based on the following: –
- Health and lifestyle factors – produced the enhanced lifetime mortgage which uses underwriting techniques to assess life expectancy, used to then calculate the maximum release of equity.
- Income or flexible withdrawals – resulted in the popular drawdown lifetime mortgage scheme which provides a cash reserve facility from which the homeowner can take cash withdrawals as & when required.
- Monthly repayments of interest – the interest only lifetime mortgage reversed the mechanics of traditional equity release schemes by allowing monthly repayments of only interest and maintain a level balance.
- Partial ad-hoc lender repayments – a recent innovation which enables voluntary repayment plans accept upto 10% of the original amount borrowed each year with no penalty, thus enabling complete balance control.
These are lifetime mortgage schemes. To understand their features and risks ask for a personalised illustration.