Pros And Cons Of Lifetime Mortgages
If you are considering using a Lifetime Mortgage as your means of releasing equity from your home, here is a summary of their Pros and Cons:
Pros of Lifetime Mortgages
- You will be able to keep your home and continue to live in it for as long as you are able.
- Your Lifetime Mortgage is repaid on your death or on the sale of your property, so you can be sure that you won’t have to leave your home.
- You will be able to benefit from any increases in the value of your property because you will continue to live in your home.
- Many Lifetime Mortgage arrangements have a guarantee that means the total debt from your loan will not be permitted to exceed the value of your property. This means that there won’t be any nasty surprises when you sell your home or when your beneficiaries inherit your estate.
- A Lifetime Mortgage is similar to other forms of equity release in that it enables you to reduce the amount of Inheritance Tax that will be paid when you die because the value of your estate will have reduced by the value of your loan.
- When your home is eventually sold and your Lifetime Mortgage is paid off you may be able to provide some money to your beneficiaries or when you move into care. This will be subject to the amount and term of the loan you have taken out.
- The equity released on your main property is free from tax because it is in the form of a loan. This compares favourably with a pension where you are permitted to take 25% of your pension pot as a tax free lump sum: the remainder is taxed at your marginal rate by the pension provider.
- You have the option of using your Lifetime Mortgage to provide you with a large lump or a guaranteed monthly income.
- A Lifetime Mortgage uses fixed rates of interest which enable you to know precisely how much you will be paying and avoid large interest accumulations.
Cons of Lifetime Mortgages
- There are usually fees involved with setting up your Lifetime Mortgage, such as arrangement fees, a valuation on your property and legal fees.
- Because you will still own and occupy your home, you will continue to be responsible for maintaining your property and paying utility bills, Council Tax, etc. Lenders will expect you to keep your home in good condition and you will also be required to have buildings insurance. You will therefore need to ensure that your income levels are sufficient to cover your monthly outgoings.
- Taking out a Lifetime Mortgage might affect your entitlement to state benefits because you will be releasing the equity from your home and taking receiving it as a lump sum or as income.
- You will need to obtain the provider’s permission to accommodate a change in your circumstances – eg, you need a carer or relative to move into your home to look after you.
- Similarly, your options for moving to a smaller home (downsizing) are limited because the value of the home may not be sufficient to accommodate the debt.
- The inheritance you will be able to pass on to your beneficiaries will be reduced because your Lifetime Mortgage will be repaid by the sale of your home. The amount of money that is left after the loan is repaid depends on the type, term and amount of Lifetime Mortgage that you take out.
- If your home is sold soon after taking out a plan, your estate is likely to incur a loss because Lifetime Mortgages are designed to be medium-long term arrangements.