A lifetime mortgage is one retirement product available to UK homeowners in England, Wales, Scotland and Northern Ireland. While not all providers service the entire UK, there are those who will provide retirement equity releases in all four countries. By shopping around and comparing the different lifetime mortgage products, you can determine what works best for you. The equity release market has two main products to help homeowners, the other being home reversion. For this section the focus will be on lifetime mortgage in terms of what it is, and the pros and cons.
The Specifics of Equity Release Mortgages
Lifetime mortgages are set up for individuals 55 years of age or older. Industry providers have different minimum age qualifications, thus not all providers will start out with a minimum age of 55. There are some companies that do not offer products until the age of 60, 65 and some that only start at 75.
The idea is for the homeowner to obtain a mortgage with no immediate repayment necessary. Repayment of capital and interest is made at death or permanent relocation to an assisted living facility.
It makes it easier than a traditional loan that requires a monthly repayment of interest and capital sum, but more on that in the advantages.
Lifetime mortgages also focus on property value. Most products require a minimum of £70,000 for the property value. The minimum has changed from past products and most likely will change as the industry changes. Also, providers set their own minimum property value requirement, thus some companies may provide a higher minimum than what is named here.
Using the average life expectancy of a person based on their current age and the property value, a loan to value percentage is calculated. This percentage is the lump sum of tax free cash provided to the homeowner. As an older person may expire earlier the sum is often more than a younger homeowner can receive. The funds provided are significantly lower than the current home value to account for the compounding interest.
Advantages of Lifetime Mortgages
• There is no repayment until death or a move in to long term care
• The sum of tax free funds can be used as the homeowner wishes
• There are different types of lifetime mortgages to fit consumer needs
For some homeowners, making repayments such as paying interest only can be a viable option. There are interest only lifetime mortgages where monthly interest needs to be made. There are also mortgages with an enhanced lump sum should the person have an illness and need a higher maximum loan to value percentage. There are also drawdown options to have a cash reserve facility for more funds with a lower initial lump sum. Another advantage is the voluntary repayment scheme.
Disadvantages of Lifetime Mortgages
Spending the equity now can mean leaving no inheritance for beneficiaries. Repayment must also be made eventually. These are minimal disadvantages considering the access to funds provided to live a comfortable retirement. While full property value is not supplied there is at least the knowledge that the funds accessed can be used as the homeowner requires them to be.
Require further information?
Use the form below to request further information about this, or any other scheme, and an FCA regulated independent equity release adviser will be able to assist you over the phone, face-to-face, or via email.