Whether it be a lump sum or a drawdown, we’ll advise on the most appropriate option form of Lifetime Mortgages for your circumstances.
Unlike conventional mortgages, where interest is charged on an amount that decreases with time, interest on a Lifetime Mortgages is charged on an increasing sum, so your debt can grow quickly. This is because you don’t make any repayments, so the interest on the loan is therefore added to your debt on a continual basis. Most Lifetime Mortgages have a fixed rate of interest. Some providers offer variable-rate Lifetime Mortgages, but these offer less certainty.
You’ll never have to repay more than the value of the property, however, as members of the Equity Release Council, a trade body for providers of the schemes, have guaranteed that people who take out the product won’t ever find themselves in this scenario.
In fact, the myth that you will have to repay more than the value of the property is one we hear with depressing regularity. For some clarity (and some facts!) about Lifetime Mortgages see our blog post on the subject.
How do I take out a Lifetime Mortgage?
Equity release providers have some strict lending criteria, such as a minimum age, which is normally 55 or 60.
The percentage of your property you can borrow against depends on your age; the older you are, the more you can borrow. At 65, you can normally borrow 25% to 30%, for example. If you’re older, you can borrow as much as 50%. There are also minimum loan amounts – which can range from £10,000 to £45,000. Your home will probably have to meet a minimum value specification too (normally £70,000 to £100,000).
What are the different types of Lifetime Mortgage?
The basic form of Lifetime Mortgage is a lump-sum loan, where the interest payable is ‘rolled up’ over the full term. There’s nothing to pay for the rest of your life, but interest is compounded year on year until you die (or move into a residential care home). For most lump-sum deals, interest rates are fixed at the outset.
Some firms offer a flexible Lifetime Mortgage, where you take a smaller amount at the outset, then draw down further borrowings as required. Since you pay interest only on the money you’ve taken, the overall cost can be considerably lower. Interest repayment Another way to reduce the cost is to allow borrowers to pay off some, or all, of the interest during the life of the loan.
Lifetime Mortgages may affect eligibility to state or means-tested benefits and can affect the inheritance you may leave.