What is a Lifetime Mortgage or Equity Release Scheme?
The most common type of Equity Release is the Lifetime Mortgage
A lifetime mortgage enables you to take out a loan secured against your property. This will give you either:
- A cash lump sum, OR
- A regular income for the rest of your life.
The loan, plus the interest that has accrued, does not have to be repaid until your house is sold (when you either die or move into long term care). Alternatively, you can opt to pay the interest or make ad hoc payments to reduce the interest accumulating
These mortgages represent a serious financial commitment and should only be taken out when you have received the relevant professional advice. Only a specialist adviser authorised advise you this type of mortgage after having fully discussed all the implications with you. We have advisers with the necessary qualifications to do so. For the majority of people it is a requirement of the Financial Conduct Authority that they receive professional advice before taking out a lifetime mortgage and we strongly advise you to do so.
Who can have a Lifetime Mortgage?
Most companies will only offer lifetime mortgages to the over 60's although some are available if you are over 55. You also need to own your own home or have only a small mortgage outstanding.
What other types of Equity Release are available?
There are three main categories for equity release but within each category are several variations and our job is to ensure that the product suits your needs. The main types are:
- Lifetime Mortgage - allows you to release equity from your home in a cash sum. This is repaid (with the interest that has accrued) when you die or sell the house to move into long term care.
- Drawdown Lifetime Mortgage - this is similar to a lifetime mortgage but is more flexible as a borrowing limit is established and having drawn an initial sum you can take further withdrawals as and when required. Interest is only due on the amounts withdrawn. This can mean that less interest builds up over your lifetime than taking a one off payment.
- Home Reversion Plan - you give up part or all of the ownership of your property in exchange for a lump sum of money. You remain in your home, often rent free, until you die or move into long term care.
What are the disadvantages of a lifetime mortgage?
The the lump sum or income you receive from your mortgage provider could reduce or remove any means-tested benefits you are entitled to. Also, if you were to change your mind and wanted to repay the lifetime mortgage there are likely to be significant early repayment charges.
All of these plans have implications for your ultimate estate, especially if you have family who were expecting to inherit your estate. It is extremely important that you choose the right plan to suit your needs. We can offer you the specialist, sympathetic advice to help you make the right decision for you and your family.
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