Lifetime Mortgage

Lifetime Mortgage

Lifetime mortgage products are a form of equity release which allows borrowers to have access to a mortgage that only needs to be paid back at the end of the agreement. One main marker for the end of the agreement of the equity release would be the death of the borrower, or if the borrower is admitted to a care home without the expectation of returning due to deteriorating health. In some cases, the borrower is able to move to another home, but this may signify the end of the equity release agreement and the debt may need to be paid back to the provider in full under this circumstance. By consulting to our advisors, the client is ensured to receive sound advice, giving them the opportunity to assess their options regarding which lifetime mortgage they require.

In terms of how many different forms of lifetime mortgage products that are available to individuals seeking equity release, there are three main types.

The interest only lifetime mortgage does not require the borrower to pay the total sum of the loan until the end of the agreement; yet interest rates are paid monthly and vary on a month-to-month basis.

Taking out an interest only lifetime mortgage would be more beneficial to younger individuals as this mortgage can be used to pay off debts from previous loans. However, as carrying out this type of lifetime mortgage requires monthly payments, the individual may not have the sufficient income to carry out these payments. In addition, increases in income as a result of using an interest only mortgage could restrict the individual’s capability to apply for state benefits.

There is also the rolled interest lifetime mortgage. The borrower does not have to pay any of the loan or interest until the end of the contract (in the event of the borrowers death or the borrower moving to a residential home), although interest rates are not fixed and are still calculated every month, resulting in a larger debt to pay off to the provider by the time the agreement comes to an end. The borrower can use the plan to generate a cash lump sum, allowing the individual to spend the money on what they desire.

Also, the money generated from the lifetime mortgage may be used to purchase an annuity, which will give the individual an income that is guaranteed until the rest of their life or at least until the contract expires. Borrowers are also allowed to withdraw smaller lumps of money called drawdowns.

Interest rollover lifetime mortgages have a number of benefits, including a guaranteed occupancy for life for the borrower, no monthly interest payments are required and the loan will reduce the inheritance tax liability. On the other hand, arranging a interest rollover lifetime mortgage could result in a rapid roll up of interest, especially if interest rates increase, creating a larger debt. It is also a long term arrangement, so if the borrower was to cancel the contract it would be likely they would undergo penalties.

Home income plans are another alternative form of life mortgages. The provider lends the individual a lump sum, which is used to purchase an annuity, allowing the payments to be made to the provider every month. Interest rates are fixed in this type of lifetime mortgage. This arrangement is only advisable when the annuity income tax is more than the mortgage payments each month.

Shared appreciation mortgages give the borrower a lump sum generated by the borrower is used to buy an annuity to pay off the mortgage on a monthly basis. The provider is entitled to a stake in the future increase in the property value. On death, the original mortgage is repaid and the provider takes a percentage share in the properties value increase. Shared appreciation mortgages are no longer available in the lifetime mortgage market.

Before considering a lifetime mortgage, the individual must realize there are many risks associated with each type of lifetime mortgage and must have a thorough understanding of the structure of the plan and which plan would be most suited to their future. Our profession allows us to guide clients to selecting the appropriate lifetime mortgage, based on the client’s plans and desires for the future. We strive to seek a lifetime mortgage, which is suitable, affordable and cost effective for the client.

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

CHECK THAT THIS MORTGAGE WILL MEET YOUR NEEDS IF YOU WANT TO MOVE OR SELL YOUR HOME OR YOU WANT YOUR FAMILY TO INHERIT IT. IF YOU ARE IN ANY DOUBT, SEEK INDEPENDENT ADVICE.