Lifetime mortgages are a viable option for those looking to access the equity in their homes.
However, they come with advantages and disadvantages that should be carefully considered before making a decision.
It is important to explore alternative options and choose a reputable provider that meets the borrower’s needs.
1. What are Lifetime Mortgages?
A lifetime mortgage is a type of equity release product that allows homeowners over the age of 55 to access a portion of the equity in their homes. This equity release product is secured against the borrower’s property, and the loan, along with the interest accrued, is repaid from the proceeds of the sale of the property when the borrower dies or moves into long-term care.
2. How Do Lifetime Mortgages Work?
A lifetime mortgage provides a lump sum or a regular income to the borrower, depending on their preference.
The amount that can be borrowed depends on the value of the property, the borrower’s age, and the provider’s criteria.
The borrower retains ownership of the property and can continue to live in it, as long as they maintain it and keep up with any other obligations, such as insurance and property taxes.
3. Types of Lifetime Mortgages
There are two main types of lifetime mortgages:
- Roll-up lifetime mortgage: With this type of lifetime mortgage, the borrower does not make any repayments during their lifetime. Instead, the interest is added to the loan amount and compounds over time. The loan, along with the accrued interest, is repaid from the sale of the property.
- Interest-only lifetime mortgage: With this type of lifetime mortgage, the borrower makes interest payments during their lifetime, which can help reduce the overall debt. The loan, along with any remaining interest, is repaid from the sale of the property.
4. Advantages of Lifetime Mortgages
- Access to funds: Lifetime mortgages can provide a lump sum or a regular income, which can help finance retirement expenses or unexpected costs.
- No repayments required: With a roll-up lifetime mortgage, the borrower does not need to make any repayments during their lifetime, which can be a relief for those on a fixed income.
- Retain ownership of the property: The borrower retains ownership of their home and can continue to live in it, as long as they fulfill the obligations of the loan.
5. Disadvantages of Lifetime Mortgages
- Reduced inheritance: The loan and interest accrued are repaid from the sale of the property, which can reduce the inheritance left for beneficiaries.
- Impact on means-tested benefits: Taking out a lifetime mortgage can impact the borrower’s eligibility for means-tested benefits, as the loan is considered a form of income.
6. How Lifetime Mortgages Impact Inheritance
As mentioned earlier, taking out a lifetime mortgage can impact the inheritance left for beneficiaries. The loan and interest accrued are repaid from the sale of the property, which can reduce the amount of inheritance left to loved ones.
However, some lifetime mortgages come with inheritance protection, which means that the borrower can ring-fence a portion of the property’s value to leave to their beneficiaries.
7. Alternatives to Lifetime Mortgages
There are alternative options to lifetime mortgages that homeowners can consider, such as:
- Downsizing: Selling the property and moving to a smaller home can release equity without taking out a lifetime mortgage.
- Home reversion plans: A form of equity release where the borrower sells a portion of their property to a provider in exchange for a lump sum or regular income.
- Personal loans: Borrowing a lump sum from a bank or other financial institution can provide the funds needed without risking the equity in the property.
8. Eligibility Criteria for Lifetime Mortgages
To be eligible for a lifetime mortgage, the borrower must meet certain criteria, such as:
- Being over the age of 55
- Owning a property valued above a certain amount
- Having no existing mortgage or a small mortgage
- Using the loan for a qualifying purpose, such as home renovations or debt consolidation
9. How to Choose a Lifetime Mortgage Provider
When choosing a lifetime mortgage provider, it is important to consider factors such as:
- The interest rate and fees
- Flexibility in the loan terms
- Customer service and support
- Reputation and track record
10. Frequently Asked Questions about Lifetime Mortgages
- Can I pay back the loan early?Yes, most lifetime mortgages come with the option to repay the loan early, although there may be early repayment charges.
- Will I owe more than my property is worth?No, lifetime mortgages come with a no-negative-equity guarantee, which means that the borrower will never owe more than the value of their property.
- Can I move house with a lifetime mortgage?Yes, most lifetime mortgages are portable, which means that the loan can be transferred to a new property, subject to the provider’s criteria.
- Can I leave my property to my beneficiaries?Yes, although the loan and interest accrued will need to be repaid from the sale of the property, the remaining equity can be passed on to beneficiaries.
- Will I still own my property with a lifetime mortgage?Yes, the borrower retains ownership of their property with a lifetime mortgage
- What are the eligibility criteria for a lifetime mortgage?To be eligible for a lifetime mortgage, the borrower must be over 55 years old, own a property valued above a certain amount, have no or a small existing mortgage, and use the loan for a qualifying purpose.
- What is a roll-up lifetime mortgage?A roll-up lifetime mortgage is a type of lifetime mortgage where the borrower does not make any repayments during their lifetime. Instead, the interest is added to the loan amount and compounds over time.
- Can a lifetime mortgage impact my eligibility for means-tested benefits?Yes, taking out a lifetime mortgage can impact the borrower’s eligibility for means-tested benefits, as the loan is considered a form of income.
- What are the alternatives to lifetime mortgages?Alternatives to lifetime mortgages include downsizing, home reversion plans, and personal loans.
- Can I leave my property to my beneficiaries with a lifetime mortgage?Yes, although the loan and interest accrued will need to