A lifetime mortgage is a secured loan on your home, which unlike other loans, doesn’t need to be paid back until you die or go into long-term care. As a form of equity release, it means you can release some of the capital tied up in your home while still being able to live there.
As is the case with most financial loans, you have to pay interest on a lifetime mortgage payment, which can either be given as one big lump sum or in payments, depending on the type of lifetime mortgage you go for.
Types of Lifetime Mortgage
An interest roll-up mortgage – where interest is added to the amount you borrow; whether you receive a lump sum or regular payments. This form of lifetime mortgage doesn’t require you to make any regular repayments, even though you are being charged interest. The interest is added to the main amount and is repaid in full when the mortgage term ends and the property is sold.
An interest paying mortgage – if the idea of debt mounting up fills you with discomfort, then an interest paying mortgage may be more suitable. You receive the lump sum payments in the same way, but you can make repayments on your interest amount to prevent the loan amount from building up. The total amount left to pay is then done so at the end of the agreement.
Drawdown lifetime mortgage – instead of receiving one big lump sum, you can take small amounts of money as and when you need them. Therefore, you’ll only be paying interest on the money you require, rather than the entire lump sum, reducing the cost significantly.
Factors To Consider
You have to be 55 and over to be eligible for a lifetime mortgage and the house has to be your main residence.
The amount you can borrow depends on your age – the older you are, the more you can borrow.
Receiving the payments may affect your tax position as well as any access to benefits you may have.
There is a danger of owing more than your house is worth, particularly with an interest roll-up mortgage as you don’t start paying anything back until the end of the mortgage term. This can be prevented with a no negative equity guarantee.
Lenders will expect you to keep your home in a good condition and in order to comply with this, some people may need to use some of their lifetime mortgage to make any necessary home improvements, to increase the likelihood of the home selling at the end of the mortgage term.
If you want to pay the loan back early, then lenders will usually charge an early repayment charge to compensate for the interest payments they will be losing out on.
Why Would You Take Out A Lifetime Mortgage?
Taking out a lifetime mortgage is a big decision and needs to be considered carefully. If the reasons you want to take out a lifetime mortgage can be covered by any savings you have, then you may personally see this as a better fit.
However, some people may decide to take out a lifetime mortgage to help any family or dependants that are in need of financial help.
Or you may have home renovation plans that require a big budget, which you don’t have readily available at your fingertips.
Perhaps you just want to treat yourself to the holiday of a lifetime, because whatever you do with the money is completely your choice.