What is a Lifetime Mortgage?
A lifetime mortgage is one of the most popular forms of equity release because it allows you to free up part of the value of your home without risk to losing it. You retain full ownership, the equity you release is tax-free and can be taken in a lump sum. Consequently, a lifetime mortgage would be particularly beneficial if you’re looking to raise a large amount of cash without having to worry about regular repayments for the rest of your life.
Interest is added to the lifetime mortgage over your lifetime, accruing at a fixed or variable rate. The loan plus interest is eventually repaid when your home is sold. This can be when you move into long-term care, or when you and your partner die. In the UK, you can usually release up to 50% of the value of your home with a lifetime mortgage but that will vary depending on the value of your home and your age. An independent equity release specialist will be able to advise you more.
Advantages of a Lifetime Mortgage
The advantages of a Lifetime Mortgage include:
- Lifetime mortgage plans can be taken typically from the age of 55
- A lifetime mortgage gives you the choice of a cash lump sum or a regular income with no repayments
- You retain full ownership of your house
- It can reduce the amount of inheritance tax paid by your estate
- You always get a no negative equity guarantee, which means you will never owe more than the value of your home in the event of a market downturn and you can never pass on debt in your estate
- Lifetime mortgage plans are regulated by the Financial Services Authority (FSA)
Disadvantages of a Lifetime Mortgage
The disadvantages of a Lifetime Mortgage include:
- It will almost certainly reduce the amount of money your family will inherit when you pass away
- It could effect the sum of state benefits you are entitled to
- If you repay the lifetime mortgage early, you may have to pay added fees – although these vary from plan to plan so talk to an independent equity release specialist for more information
- You won’t be able to use your property as security for another loan or mortgage
- Lifetime mortgages have become more popular over the past few years, prompting many providers to offer a variation of a lifetime mortgage called a drawdown mortgage which allows you to release equity as and when you need it, rather than taking a lump sum or regular income.
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