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Lifetime Mortgages

A lifetime mortgage is a type of equity release plan that allows you to take cash from the equity that has accumulated on your property over the years.

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If, like many older homeowners, you have paid off your mortgage, you can find that while you have substantial wealth tied up in your property, you are short of cash. A lifetime mortgage could help to overcome this issue by allowing you to borrow money secured against the value of property, letting you release tax-free cash while remaining in your own home.

As the name suggests, a lifetime mortgage does not need to be repaid until you leave your home – either when you die, or when you go into long-term care.

Who can apply for a lifetime mortgage?

When you apply for a lifetime mortgage the mortgage provider will calculate the amount of money that you can release. This will be based on factors such as your age, your life expectancy, and the value and type of property you own, as well any existing debts.

If you want to apply for a lifetime mortgage you will need to meet several criteria. Firstly, you will need to meet the minimum age requirement, which is usually 55 or 60. The percentage of your property that you can borrow as a tax-free lump sum depends on your exact age when you take out the lifetime mortgage. Generally speaking, the older you are, the more you can borrow - in some cases up you may be able to borrow up to half the value of your home.

Not all properties are eligible for lifetime mortgages. You may not be able to get an lifetime mortgage on certain property types such as flats, or for those used for certain purposes, such as holiday homes or B&B. Your property will usually need to meet a minimum value in order for your application for a lifetime mortgage to be considered.

What are the keypoints to consider about lifetime mortgages?

Some of the potential benefits of a lifetime mortgage could include:

  • Offering a way for older people to access their equity while remaining in the own home, rather than having to downsize. Unlike some other types of equality release, a lifetime mortgage means retaining ownership of your home also means that you can still benefit from any house price increases.
  • There are normally no repayments to be made until you die or until you move into a care facility – at this point, the property will be sold to pay off the loan.
  • Fixed rates of interest - many lifetime mortgage deals offer this.

However, lifetime mortgages are not the best option for everyone, and some of the potential drawbacks could include:

  • The interest charged on your cash lump sum is added to your outstanding debt, which can, over time, affect the proportion of your home that you own outright.
  • Taking out a lifetime mortgage could affect any means-tested benefits that you are eligible to receive.
  • The interest rate on a lifetime mortgage is usually higher than that of a conventional mortgage.
  • With a conventional mortgage, interest is charged on a decreasing amount as the amount left to pay off, reduces over time. Because no repayments are made on a lifetime mortgage during the term of the loan, interest compounds rapidly and if there is not enough money left from the sale of the property to pay off the loan, your beneficiaries would have to repay any extra. Therefore, it’s important to make sure that your lifetime mortgage offers a no negative equity guarantee, which ensures that you will never have to pay back more than the value of your home.
  • If you choose to repay the loan early you may incur repayment charges.

Choosing a lifetime mortgage is a major commitment, so it is essential to research you options first.

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Lifetime mortgages as from October 2004 are regulated by the Financial Conduct Authority. A lifetime mortgage is a loan secured on your home. The loan and interest are normally repaid from the proceeds of the sale of your home when you die or move into long term care. With a home reversion plan you sell all or part of your home for cash. However you do not get the full market return for doing so.

The above equity release mortgage detail is for information purposes only as does not constitute financial advice under the Financial Services and Markets Act 2000. When considering any type of equity release product, it is important that you seek independent legal advice.

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