What are Lifetime Mortgages?
Lifetime mortgages are a form of equity release, providing you with a long-term loan which is secured on your property. You can continue to live in your home and you don’t have to make any repayments until the end of the term (dependent on the type of mortgage you choose), usually when you die or go into long-term care.
At the end of the term, your property is sold to pay back the amount borrowed and the interest. You can, however, keep back some of the value to pass on to loved ones as inheritance and they will receive this once your home has been sold. If your estate can cover the cost of the mortgage without selling the property, your beneficiaries can choose to do so if they wish.
Bear in mind that if the sale value of your home does not cover the mortgage repayment, your beneficiaries will have to pay the outstanding balance from your estate. To prevent this situation from arising, many lenders offer a “no-negative-equity guarantee” – This guarantee ensures that you/your beneficiaries will never have to pay back more than the value of your property, even if the mortgage debt is greater than your property’s value at the time of sale.
The Different Types of Lifetime Mortgage
There are two main types of lifetime mortgages:
- Interest Roll-Up Mortgage
With an interest roll-up mortgage, you don’t make any repayments until the end of the mortgage term. You can choose to receive your loan amount in a lump sum or as a regular income payment. The interest is accumulated throughout the term and is paid with the loan amount upon the sale of your property. It is advisable to get a no-negative-equity guarantee if you choose this type of mortgage, as the interest can quickly add up and could exceed the value of your home.
- Interest-Paying Mortgage
In the case of an interest-paying mortgage, you receive a lump sum and make regular payments to prevent the interest from building up. The loan amount is then paid off upon the sale of your property. It’s worth considering a fixed-rate deal or one with an interest rate cap, as a change in interest rates could mean that your payments increase.
Is a Lifetime Mortgage Right for Me?
Before applying for a lifetime mortgage, there are some important factors to consider:
- Your lender will expect you to maintain your home and keep it in good condition, you may need to set aside some funds to do this.
- A lifetime mortgage may affect your tax position and your entitlement to means-tested benefits (if applicable).
- Taking out an equity-release mortgage may affect the amount you can leave to loved ones as an inheritance.
- You will be required to have buildings insurance, so this cost needs to be factored in.
- There may be other costs such as legal fees, valuation fees, and a completion fee.
- If you want to pay the loan off early, you may incur early-repayment fees.
If you’re looking at lifetime mortgage, it is a good idea to seek advice from an independent advisor. At Key Mortgage Advice, we can walk you through the process and answer any important questions you may have, such as:
- What happens if I die shortly after taking out the loan?
- Can I transfer the mortgage if I decide I want to move home?
- Will a lifetime mortgage affect the amount of benefits I receive?
To book a free consultation, head over to our “Contact Us” page where you can email us directly, or find the telephone number for your local Key Mortgage Advice branch.