What is a Lifetime Mortgage?

A Lifetime Mortgage is a type of Equity Release Plan that lets you take cash from the equity in your home and use it as you wish.

How It Works

You borrow money secured against the value of your home, the amount will primarily depend on your age and the value of your property. The amount you receive is tax free and you keep ownership of your home.

Interest is charged on what you have borrowed and is typically added to the loan amount. This is known as “Rolling up interest” or " Compounding". In the current market, the amount you borrowed doubles about every 15 to 24 years. As a guide, divide the interest rate into 72. Therefore if the interest rate was 3.5%, the loan would double in 20.5 years.

As an example take a property that is valued at £250,000. You are age 70 and need to replace your car and install a new kitchen and bathroom. You need to borrow £40,000 as a single lump sum. The loan would be £80,000 in 20 years time and you would be age 90. If you died and the property was still valued at £250,000, your estate would repay the £80,000, so the remaining equity would be £170,000 for you to leave as an inheritance.

Where your estate is large, say over £1m, a Lifetime Mortgage can be used to reduce your estate value for taxation purposes. This is a very specialised area and you will need to talk to a qualified adviser or tax accountant to obtain the best advice.

Some plans give the option of making repayments either as regular repayments or as " ad-hoc" repayments as and when you can afford it. Most lenders place a limit on repayments in any 12 month period. Usually this is 10% of what you borrowed, but there are differences and it is important not to incur penalties for excess repayments. The real benefit of a Lifetime Mortgage is that if at any point you cannot make a repayment, you will not face the threat of re-possession or damage to your credit record. This is unlike normal mortgages or those supposed to be " equity release" under retirement interest only mortgages. Again, this is where good advice is crucial to ensure you end up with the product that is right for you.

You can continue to live in your home until your death or you go into long term care. If you are a couple and one dies or goes to a care home, the other partner remains in the home and is protected. No repayments are due and you do not have to sell your home. When both of you has died, or the last occupant moves to a care home, this is when your home is sold and the Lifetime Mortgage ends..

The above example was for a single lump sum. A Flexible Lifetime Mortgage is often called a Drawdown Mortgage which is explained in more detail here.

An Enhanced Lifetime Mortgage is designed for people with certain medical conditions to release a higher amount than would otherwise be available to people the same age. The best way of finding out whether Equity Release is a good idea for you, and if it is which variation or type of plan would suit you best, is to talk to an experienced and qualified practitioner.

If you still have a mortgage left to pay on your property, the money you release with a Lifetime Mortgage will go to pay this off first. If you release more than the outstanding mortgage, you are completely free to spend the balance as you wish. Some of the most popular reasons for taking an Equity Release include, home improvements, paying off other unsecured loans and credit cards, replacing a car, holidays, and helping someone in your family get on the housing ladder.

What costs are there?

Costs can vary when releasing equity from your home with a Lifetime Mortgage, not all will apply but typically can include:

  • Legal fees will apply in all cases. It is mandatory that you appoint your own legal adviser. Fixed fee services are available for specialists.

  • Land registry fees for title amendments such as adding or deleting a name. Some properties are unregistered so will incur a fee depending on the valuation.

  • Survey valuation fees ( normally free under my service)

  • Application fees ( normally free under my service)

  • Buildings insurance, which you should already have in place.

  • Admin fees on repaying an existing mortgage.

  • Early repayment fees for existing mortgages. Please obtain a redemption statement from your lender which will show the costs.

  • Adviser fee. A fixed fee payable at the end of the application process. Beware of free services where there is no choice of lender. I am a whole of market adviser and completely independent.

Fees are payable at the end of the process so usually no upfront costs.
It is important that you fully understand which costs will apply to you and how much they are before you commit to proceeding with an application. An independent adviser will always explain these before you apply.

What are the Safeguards

  • I am a fully qualified Equity Release Specialist. I am a registered adviser with the Financial Conduct Authority and with the Equity Release Council. I adhere to all the laid down principles and standards of both. All advice is in writing and all my work is overseen by our compliance department.

  • Your family, friends, or attorneys are encouraged to attend our meetings or at least be advised if they cannot attend in person.

  • You will still own your own home with a Lifetime Mortgage.

  • With an Equity Release Lifetime Mortgage Plan both you and your partner can remain in your home until you both pass away or go into permanent care.

  • No negative equity guarantee means that you can never owe more than the value of your home. Therefore, you can never leave a debt for your family.

  • Even if your property decreases in value and the money from the sale wasn’t enough to repay your plan, any remaining debt would be written off by the lender.

  • You can move house and take the Lifetime Mortgage with you. All lenders have a facility to re-balance the loan to the new property. If the existing loan is too big for the new property, a penalty free repayment is allowed. Some lenders allow you to fully repay without any penalty if you are downsizing after a number of years. If a house move is part of your future plans, it is very important to discuss this with an adviser from outset.

  • If your circumstances suddenly change, say for health reasons, and you wish to move house, you’ll have the flexibility to do so. Please note that the new property must meet the lending criteria of your equity release provider. The lender must survey the property and give their approval before you enter into any sale and purchase contracts.

To understand the features and risks of a Lifetime Mortgage, please ask for a personalised illustration

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