Flexible Lifetime Mortgages

Flexible Lifetime Mortgages

Flexible lifetime mortgages are a form of equity release, which gives the homeowner the chance take out a loan that would be secured against their home. This guarantees the homeowner lifetime occupancy to their property on the condition that the total sum of the mortgage loan, along with interest, is paid back to the provider of the mortgage by the time the arrangement is terminated. Flexible lifetime mortgages will be terminated at the event of the death of the borrower, or if the borrower has been admitted to a care home for their remaining days. Under some conditions, the contract could be terminated before any of these events occur, such as the borrowers desire to move to another home. This would indicate the end of the agreement and the debt would have to be paid in full to the provider, including all interest up to that point. It can be arranged for the borrower to carry out flexible lifetime mortgages under the name of the new home, meaning the difference in percentage between the mortgage of the old and the new home is paid to the provider offering the flexible lifetime mortgages.

When contemplating whether flexible lifetime mortgages are suitable for the individual’s needs, the individual needs to be aware of the three different flexible lifetime mortgages on offer. The first being interest only flexible lifetime mortgages. These work by lending the borrower a lump sum of money, which does not have to be paid back until the end of the agreement. The borrower has to pay a monthly rate of interest however, which may be fixed or variable.

Interest only flexible lifetime mortgages are useful as they provide a lump sum of money, which allows the borrower to use the money as they wish. However, the borrower will have to make interest payments each month. If interest rates increase, it could become difficult for the borrower to keep up with payments. Any income generated would not be enough to meet the repayments of the loan.

Rollover income flexible lifetime mortgages allow the borrower to pay the interest back at the end of the contract, along with the loan. The cash generated can be received in a lump sum, or as income. The problem with rollover interest flexible lifetime mortgages is that interest is likely to roll up rapidly. This will add additional debt to the final mortgage payment, thus reducing equity in the estate, which will limit the amount the borrower’s inheritors will reap from the arrangement. Furthermore, rollover interest flexible lifetime mortgages may not be suitable for younger borrowers. The reason for this is that younger borrowers have a higher life expectancy (allowing more years for interest to rollover). The debt paid to the provider at the end of the arrangement would be large if this were to occur. However, the borrower is guaranteed lifetime occupancy in their home the mortgage will be a debt against the estate, hence reducing inheritance tax.

Home insurance flexible lifetime mortgages work on the basis that the cash generated from the mortgage is used by the borrower to purchase an annuity, which provides an income for life. The borrower has the choice of receiving a level income (constant amount throughout the term), an escalating income (gradually increasing income throughout the term), and other forms of income, such as guaranteed, in advanced/arrears and a joint life income (suitable for couples). The mortgage and the interest rates are fixed with home insurance flexible lifetime mortgages; therefore the borrower is safe in the knowledge that they will receive enough income to pay off monthly instalments of the debt. This comes in line with the fact that no interest is rolled up, so the homeowner only has to pay the original mortgage at the end of the contract.

Flexible lifetime mortgages may not be suitable for all individuals over 55. The mortgage can not be used to pay off previous loans and for those who are already in a financial struggle, taking out flexible lifetime mortgages may dig a deeper hole and leave little or no equity in the borrower’s estate after death.

How to get in touch

Feefo logo

This is a lifetime mortgage. To understand the features and risks, ask for a personalised illustration.