A Lifetime Mortgage is for sure a more popular equity release option, with many providers specialising in a range of products.
A lifetime mortgage is a loan that comes with a fixed interest rate p.a., but there are no monthly instalments.
Typically you borrow this lump sum in the form of a mortgage, your debt is rolled-up on an ever-increasing total, which is eventually repaid from the sale of your home, either, when you pass away or when you move into long-term care.
ALSO READ: What is Equity Release? And what are the pros and cons?
Like with all equity release products, the percentage you can borrow is rather age dependent, typically the older you are the more cash you can release. The youngest age for some products is 55 years old.
Most providers now offer a ‘no-negative-equity guarantee’, which means the debt will never be more than the sale value of the property. However, if you take on an Interest roll-up mortgage early in your retirement and live in your house into your 80’s or 90’s, this could mean that all the property’s value is used up in paying off the mortgage at the end.
Lifetime mortgage options
Interest roll-up mortgages – the equity pulled from your home is given to you in either a lump sum or monthly instalments – you don’t pay anything back and the debt rolls-up and compounds year on year.
With this option you will pay-off the mortgage when you die (or go into care) with the proceeds of your home – but be careful as there may not be a lot left.
It’s worth remembering if you don’t pay off any interest as you go, the full amount will compound – so at around 5% interest, the amount you owe would double every 15 years.
Most products though, allow you to pay up to 10% p.a. of the equity release mortgage plan – over 10% p.a. you may pay an early repayment charge.
- Interest-paying mortgages – so same basis as above, in terms of the money and how you receive it, however you make monthly or ad-hoc payments to stop or reduce the amount of interest that is compounding.
This is a good lifetime mortgage option, especially if you hope to leave a good inheritance for your family.
There are also products whereby you can ring-fence a portion of your property for inheritance.
Seeking the best product advice
This is why independent financial advice is absolutely key, and often if you have family or people to leave your property to, downsizing may be the first thing to look at, as an alternative option to freeing up cash.
Even though the benefits of equity release are quite clear for people, and often outweigh the disadvantages, it is important to know the pros and cons.
The good news nowadays is, equity release is regulated by the FCA and all providers should adhere to the Equity Release Council standards – this means all advisors are obligated to give the best possible advice to their customer.