Types of Lifetime Mortgage
There are three different types of Lifetime mortgage that are currently available on the market.
The type of Lifetime Mortgage that you choose depends on your circumstances and your objectives so it is prudent to carefully consider the advantages and disadvantages of each product before making a decision.
You should always take advice from a fully qualified Equity Release specialist who should have full knowledge of each product. Providers are frequently revising their products and so a qualified adviser should be familiar with their features and how they are appropriate to your requirements.
1. Fixed Repayment Lifetime Mortgages
A Fixed Repayment Lifetime Mortgage enables you to take out a loan that is secured against your house, and you receive a lump sum. However, instead of paying interest on the loan, you will pay a higher sum than originally borrowed when your home is sold in the future.
Advantage Of A Lifetime Mortgage
The advantage of this type of Lifetime Mortgage is that you have no payments to make and only repay the loan when you sell your home. For most people, this is when they move into a smaller house or care.
Limitation Of A Lifetime Mortgage
There is a limitation to this kind of equity release product. If you agree to a repayment sum that is fixed at the outset and which is based on interest that would be paid for a specific life expectancy (eg, ten years), you will still be liable for the full amount if you die within a few months.
Disadvantages Of A Lifetime Mortgage
There are two disadvantages to this type of Lifetime Mortgage:
Reduction in Benefits
You must make sure that the cash you receive from the mortgage does not reduce or remove your entitlement to means-tested benefits.
Early Repayment Charges
If you repay the Lifetime Mortgage early then you will be liable to repayment charges that could cost several thousands of pounds. This will have a significant impact on any family expecting to inherit your estate.
2. Interest-Only Mortgage
An Interest-Only Lifetime Mortgage enables you to take out a loan that pays a cash lump sum secured against the value of the home, and the amount originally borrowed is repaid when the home is sold.
However, the interest on the mortgage is paid at a fixed or variable rate. If the interest rate is variable and your pension or other source of income is fixed, then interest rate rises are likely to present a problem.
3. Roll-up Mortgage
With a Roll-up Mortgage, you take out a loan that pays a cash lump sum or income that is secured against the value of the home – just like the other two products above. However, the interest on the loan ‘rolls up’ (accumulates) at a fixed or variable rate but is not paid until the home is sold.
This means that the amount you borrow on this basis is small and probably not enough to pay for care home fees. However, the amount you owe can grow quickly, especially if a lump sum is taken.