Equity Release – Lifetime Mortgages
What is a Lifetime Mortgage?
Most people who take out equity release use a Lifetime Mortgage. Usually you don’t have to make any repayments while you’re alive, interest ‘rolls up’ (unpaid interest is added to the loan). This means the debt can increase quite quickly over time. However, some lifetime mortgages do now offer you the option to pay all or some of the interest, and some let you pay off the interest and capital.
In the same way ordinary mortgages vary from lender to lender, so do lifetime mortgages.
When considering a lifetime mortgage, there are some things you need to know
The minimum age at which you can take out a lifetime mortgage is usually 55. We’re all living longer so the earlier you start the more it is likely to cost in the long run. You can normally borrow up to 60% of the value of your property.
How much can be released is dependent on your age and the value of your property. The percentage typically increases according to your age when you take out the lifetime mortgage, while some providers might offer larger sums to those with certain past or present medical conditions.
Interest rates must be fixed or, if they are variable, there must be a “cap” (upper limit) which is fixed for the life of the loan (Equity Release Council standard).
You have the right to remain in your property for life or until you need to move into long-term care, provided the property remains your main residence and you abide by the terms and conditions of your contract. (Equity Release Council standard).
The product has a “no negative equity guarantee”. This means when your property is sold, and agents’ and solicitors’ fees have been paid, even if the amount left is not enough to repay the outstanding loan to your provider, neither you nor your estate will be liable to pay any more (Equity Release Council standard).
You have the right to move to another property subject to the new property being acceptable to your product provider as security for your equity release loan (Equity Release Council standard). Different lifetime mortgage providers might have slightly different thresholds.
Whether you can pay none, some or all, of the interest. If you can make repayments, the mortgage will be less costly. However, with a lifetime mortgage where you can make monthly payments, the amount you can repay might be based on your income. Providers will have to check you can afford these regular payments.
Whether you can withdraw the equity you’re releasing in small amounts as and when you need it or whether you must take it as one lump sum. The advantage of being able to take money out in smaller amounts is you only pay the interest on the amount you’ve withdrawn. If you can take smaller lump sums, make sure you check if there’s a minimum amount.