A lifetime mortgage is a type of equity release available in the UK, allowing homeowners aged 55 and over to release some of the value tied up in their property while still retaining ownership. The amount released can be taken as a lump sum, regular income, or both. Here are the key features and considerations:
Key Features
Retained Home Ownership: You continue to own your home and live there as long as you wish, provided it remains your primary residence and is kept in good condition.
No Monthly Payments: Typically, there are no monthly repayments. Instead, the interest is "rolled up" and added to the loan balance, which is repaid when the last borrower dies or moves into long-term care.
Flexible Options: Many lifetime mortgages offer flexibility in how the money is taken, whether as a lump sum, drawdown (regular smaller amounts), or a combination of both.
Interest Rates: These can be fixed or variable. The interest compounds over time, increasing the amount to be repaid.
No Negative Equity Guarantee: Most products come with a "no negative equity guarantee," ensuring that the amount to be repaid will never exceed the value of your home when it's sold.
Considerations
Impact on Inheritance: Because the loan and accrued interest are repaid from the sale proceeds of your home, the amount left for inheritance will be reduced.
Effect on Benefits: Releasing equity could affect your entitlement to means-tested state benefits.
Early Repayment Charges: Some products may have early repayment charges if you want to pay off the mortgage early.
Age and Health Considerations: The amount you can borrow is influenced by your age, health, and the value of your property. Older individuals may be able to release more equity.
Process
Advice: It is mandatory to seek financial advice before taking out a lifetime mortgage. This helps ensure that it's the right decision for your circumstances.
Valuation: Your property will be valued to determine how much equity can be released.
Application and Offer: After applying, you'll receive an offer detailing the terms and conditions.
Completion: Once the offer is accepted, the funds are released.
Alternatives
- Home Reversion Plan: Another form of equity release where you sell part or all of your home to a provider in exchange for a lump sum or regular payments, with the right to stay in the property rent-free.
Lifetime mortgages can be a useful tool for unlocking capital, but it's essential to fully understand the implications and explore all available options.
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