Lifetime mortgage guide

A lifetime mortgage may be a great way to increase your income for later in life. Find out how in this guide.

Your home could be repossessed if you don't keep up repayments on your mortgage. You may have to pay an early repayment charge to your existing lender if you remortgage. Any savings will vary depending on personal circumstances.
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What is a lifetime mortgage?

A lifetime mortgage is a lump sum loan that’s taken out on your property.

The loan and built up interest is paid off by selling your house when you die or are move into fulltime residential care.

Any money left from the sale of your house goes to your family following the instructions of your will.

What types of lifetime mortgages are available?

There are three main types of lifetime mortgages on offer to customers.

This is when the lump sum you get is held in a cash reserve. You can then withdraw from this whenever you need extra cash.

This is popular because the interest does not build up on the lump sum until you withdraw it from the reserve.

This limits the total cost that is paid on the lump sum. If it never gets touched, then the lump sum could pay off the loan without you needing to sell your property.

This will give you a lump sum that begins to gain interest right away. This is paid back by selling your property when you die.

This lets you make payments on your new mortgage if you wish. You can set up a monthly payment plan, but only if you want to.

This allows you to limit the potential interest on the lump sum. This means it's more likely that there will be some money left over for your family or friends when your home is sold

The drawdown lifetime mortgage

The roll-up lifetime mortgage

The flexible lifetime mortgage

This is when the lump sum you get is held in a cash reserve. You can then withdraw from this whenever you need extra cash.

This is popular because the interest does not build up on the lump sum until you withdraw it from the reserve.

This limits the total cost that is paid on the lump sum. If it never gets touched, then the lump sum could pay off the loan without you needing to sell your property.

Are there interest rates on lifetime mortgages?

There are interest charges on a lifetime mortgage.

Lifetime mortgage rates work in the same way that a regular mortgage does. You can either choose a fixed rate term or a variable rate.

People often choose fixed rate as it lets them know exactly what they’re paying on the loan.

Do I have to make any payments?

You do not have to make any payments on a lifetime mortgage if you do not want to.

There is interest charged to the loan, so the longer you live, the higher the value of the loan.

You can pay towards the loan if you want. This will bring down the total amount you have to pay back and reduce the interest charges.

You can choose to make a regular monthly payment or make single payments when you can.

How can I qualify for a lifetime mortgage?

To apply for a lifetime mortgage you need to:

  • own your property

  • be over the age of 55

Any existing mortgage on the property must be paid off in full before the completion of the plan. You can do this using the lump sum your get from the lifetime mortgage, or through any savings.

Other factors could impact your ability to get a lifetime mortgage. If you own a leasehold property and you have less than 75 years on the leasehold, you may be rejected.

The value of your property is also considered.

What if my house sale does not cover the value of the loan?

There are two possible scenarios that can play out in this situation.

Your beneficiaries pay the outstanding value from your loan

This could cause strain as a lot of lifetime mortgages have a ‘no negative equity guarantee’.

This means that if you do not get enough for selling your home to pay off the loan, your relaties will have to.

Your house sale covers the loan and there is money left over

If there's money left over it'll be split between your beneficiaries. This will follow the instructions of your will.

Pros and cons of a lifetime mortgage

Pros

Lump sum loan

It allows you to gain access to a lump sum that’ll make retirement easier. Not everyone has a large pension so the lump sum loan can reduce the strain and make daily life easier.

Financial security

It can help give you financial security for your remaining years.

Maintain ownership

You keep ownership of your house, you have borrowed against. This means if your situation changes, you can pay off the loan and still own your property.

Cons

Loss of inheritance

It can wipe out any potential inheritance for your beneficiaries.

Taxes and private pensions

It can impact the amount of tax paid on private pensions.

Should I sign up for a lifetime mortgage?

If you are thinking about getting a lifetime mortgage, get advice from a professional. This will help you find out if a lifetime mortgage is right for your situation.

If you need the extra money, a professional can help you decide if a lifetime mortgage is the best way to get it. Or whether there are other options that will give you what you need.

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Your home could be repossessed if you don't keep up repayments on your mortgage.

You may have to pay an early repayment charge to your existing lender if you remortgage.

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