Lifetime Mortgages

Under this scheme, you receive a lump sum and/or regular income.  The amount received including any interest payable on the amounts received is repaid from the proceeds of the sale of your home after you die. 

Unlike interest only mortgages, you will not be required to make ongoing interest repayments.  This type of scheme therefore suits those wishing to release equity without the ongoing commitment of making interest payments.

Interest payable on the loan amount is rolled up into the loan, which is repayable on your death.  Any equity remaining after the settling of the loan on your death will go to your family.

Under this type of scheme you retain legal ownership of your home.
The amount you can expect to receive depends on the value of your home and your age.  Higher payments will be made to more eldery homeowners, and those with higher value homes. 

Typically, you can expect to receive up to 50% of the value of your home in the form of a lump sum and/or regular income.  Only in rare circumstances will you receive more than 50% of the value of your home.

Advantages of Lifetime Mortgages

You will not be required to make any repayments, either capital or interest, during your lifetime.

Plans are available to people as young as 55 years of age.

You retain legal ownership of the property and with it, the right to remain living in the property throughout your life.

You will also benefit from future house prices increases, since you own the property.

Providers of lifetime mortgages are required to be authorised and regulated by the Financial Services Authority (FSA).  You can therefore be confident that you will be dealt with fairly.  As with all equity release schemes, we recommend you still consult with an IFA prior to entering such a scheme.

Disadvantages of Lifetime Mortgages

Because no one knows how long they will live, you cannot be certain how much the loan will be valued at when you die.  As a result, you cannot be certain how much will be required to be repaid out of the proceeds from the sale of your home.  You therefore cannot be certain how much will be left to your family when you die.
Interest rates payable on lump sums received are often not very competitive.

If you take out a loan early in your life, the amount received may be a small proportion of the current value of your home.  However, interest costs may result in the final value of the loan being a substantial proportion of your home’s value.  As a result, your family may not be left much when you die.  You therefore give up a substantial amount of your family’s inheritance for a modest lump sum early on.

Such schemes may limit your ability to raise further finance later in life from the same, or other, equity release schemes.  This may as a result affect your standard of living in later life you you live a long period after taking out a lifetime mortgage.

Flexible Lifetime Mortgages

These work similar to lifetime mortgages, in that you agree a set amount which you can borrow against the value of your home, to be repaid from the proceeds of the sale of your home when you die. 

The main difference is that you only take what you need initially, and then you are free to take future lump sums when you need them. 

Advantages are that you do not incur valuation & legal fees each time you take a lump sum.  Also, you incur less interest costs in the early years when the outstanding loan amount is lower.  Flexible schemes give you more control over the speed at which the debt and interest charges builds up.