Later Life Lending
Lifetime Mortgages (Equity Release)
Equity Release Mortgages are now more commonly known as Lifetime Mortgages and are available to anybody over the age of 55. A lifetime mortgage allows you to release some of the equity in your home. The loan is secured against your property but, unlike a normal mortgage, you don’t have to make any regular repayments towards the loan during your lifetime*. Interest accrues and compounds on the amount you borrow, and the total amount is repaid from the sale of the property when you die or move into long term care; until then, the home remains yours to live in with a no negative equity guarantee.
*Some Lifetime Mortgage Lenders now allow you to make regular payments to service the interest, thereby allowing you to preserve the equity in your home.
Types of lifetime mortgages
Most lifetime mortgages can be released in three ways; firstly, as a single lump sum, secondly as a smaller lump sum but with the ability to make further drawdowns at a future date, and thirdly with no lump sum but with regular monthly instalments for a set period such as; 10 or 15 years. If you take a lump sum, interest will be charged on the amount advanced from the date the funds are released. If, however, you opt to draw payments in regular instalments, you will only be charged interest on the total sum released at that point in time, rather than the total facility amount. Interest is not charged on funds held in reserve until they are drawn-down.
The amount you can borrow on a lifetime mortgage is linked to the value of your property and your age. The older you are the higher percentage you will be able to borrow, for example; where the youngest borrower is age 70 then one could generally borrow about 30% of the property value, whilst if the youngest borrower is 80 this could increase to 40% or above.~
Interest rates on Lifetime mortgages are usually higher than those for conventional mortgages as the interest rates are generally fixed for the rest of your life, rather than a short period of time such as the 2 to 5-year fixed rate that are popular on conventional mortgages.
Historically the interest rates available have been fixed above 6%, however, in recent years new lenders have entered the market which has created greater competition and the very best rates are currently fixed for life below 3%.
Lifetime mortgages can be a good way to obtain extra money in retirement, but they aren’t right for everyone. Here are some things to consider if you are thinking about taking out a lifetime mortgage:
- Interest is charged on the loan and compounds. As there are no repayments the total amount of interest accrued can rise quickly and substantially.
- Lifetime mortgages can affect any means-tested benefits that you may be eligible for, as well as the amount of tax that you pay.
- The amount of inheritance that you leave your family or friends when you die will also be affected, as the loan amount and interest will be deducted from the value of your property when sold.
- Having taken out a lifetime mortgage if you decide to move home you will have to transfer your lifetime mortgage to your new home. The new property will have to meet the lender’s criteria as suitable security for the mortgage.
- If you repay the lifetime mortgage early, there may be early repayment fees.
- “No negative equity” guarantees will normally apply, meaning that the total amount borrowed plus interest will never exceed the total value of your property.