Lifetime Mortgages
Lifetime mortgage providers offer fixed rates of interest on their loans which will not change within the life of the mortgage - and therefore within your life too. Traditionally, this home equity loan rate was a lot more expensive than on residential mortgages but - due to increasing competition in the market - the gap is closing.
Currently the most popular type of Equity Release plan is a lifetime mortgage. You borrow a set amount of money against the value of your home, which can be paid in the form of a lump sum. Some plans even allow you to take the money as and when you need it - which may help minimise the amount of interest owed.
You can then spend the money released however you wish. The best way to think of it is as a long term loan secured against the value of your property. The loan is paid off when your home is sold.
In the meantime, you and your partner continue to live in your home with no interest to pay during your lifetimes. Instead, 'compound interest' is added or 'rolled up' with the loan. When the time comes the debt is paid off using the proceeds from the sale of the property. This is usually when the last survivor dies or moves into permanent long term care.
Lifetime mortgages are regulated by the Financial Services Authority
ADVANTAGES:
- Typically available to those as young as 55
- You keep ownership of your own home and can still benefit from any rise in house prices
- You know how much money you will receive from the scheme at the outset
- There's the possibility of leaving some equity to your heirs, depending on the size and length of your loan
- Regulated by the Financial Services Authority
DISADVANTAGES:
- Your debt will grow over time, although with some plans this could be limited by releasing your money as and when you need it
- The entire equity in your property could be exhausted, leaving nothing for your family
- If you choose to repay the loan early, early repayment charges may apply
- Your tax position and eligibility for means tested benefits may be affected, as might your options for moving or selling your home in the future.