What is a lifetime mortgage?

A lifetime mortgage is a type of loan secured against your property. It is one way of boosting income in later life. Unlike a conventional mortgage, which runs for a fixed term; lifetime mortgages, as the name suggests, run for the rest of your life. They are the most popular form of equity release plan, enabling you to unlock cash from your home.

So, what is equity release and what exactly is a lifetime mortgage?

Equity release allows homeowners to access the money they have invested in their home. Read more about why people choose equity release in our previous blog post here. Equity release enables you to obtain a lump sum of money or a steady stream of income, or a combination of both.

The idea of a lifetime mortgage is to enable you as a homeowner to take out a loan secured against your property which doesn’t require repayment until you die or go into long-term care. You are essentially borrowing a proportion of your home’s value and nothing has to be paid back while you are still living there.

A lifetime mortgage is one way of accessing the wealth tied up in your property in later life, without the need to downsize or move to an area where property is cheaper. It gives you tax-free cash to spend as you choose, while still enabling you to keep ownership of your home.

When you take out a lifetime mortgage your home still belongs to you and you are still responsible for its upkeep. You can only take out a lifetime mortgage if you are aged 55 or over.

What is the difference between a lifetime mortgage and a residential mortgage?

There are several key differences between a lifetime mortgage and a conventional residential mortgage. Here are the most common ones:

Term of loan – there isn’t a fixed duration for a lifetime mortgage, whereas residential mortgages are for a set period of term (usually 25 years).

Monthly payments – there are no monthly repayments with a lifetime mortgage (the loan is repaid when your property is sold when your die or go into long-term care). With a residential mortgage, monthly payments are required until the end of the term of the loan.

Interest rates – lifetime mortgages have a fixed interest rate throughout the term. There are a variety of options from fixed through to variable with a residential mortgage.

How interest is charged – on a lifetime mortgage, interest is added to the amount you owe each month (known as ‘rolled-up’ or ‘compound’ interest). Residential mortgages are either repayment (monthly repayments include the interest charged) or interest-only (monthly payments only cover the interest charged).

Affordability – there are no affordability checks if you choose not to make monthly payments with a lifetime mortgage. For residential mortgages income and outgoings are assessed to ensure you can afford the mortgage repayments.

Want to know whether a lifetime mortgage is right for you? Read more in our blog post here, or contact us on 01903 890 660 for an informal chat, free of charge.

Can I move house after taking equity release?

One of the main benefits of equity release is that you can withdraw money from the value of your home without having to leave it. If you’re happy with the size of your property and don’t wish to leave the area where you live currently (which is almost inevitable with downsizing), then this is a huge benefit. However, it tends to raise another important question; what if you want to move house?

The good news is that, yes, it is possible to move house after you’ve taken an equity release scheme. Whether you want to move closer to family or into a more manageable home, care facility, or simply decide later on that you would prefer to live somewhere else, most schemes will accommodate a relocation. Usually, the only requirement is that your new home offers adequate security for your equity release lender.

What does this mean?

This can have a variety of implications depending on your scheme and the property you’d like to move to. For example, if your new home is worth less than your current property, you will probably be required to pay back some of your loan early (which may incur early repayment charges). Alternatively, you may have to give your lender a higher percentage of your new home, to match the value of their initial loan.

There may also be restrictions about the type of property you can buy. You may not be able to move to a dedicated retirement apartment or a very unusual property, as this can affect the ability to eventually sell it on the open market. Lenders generally prefer conventional homes without factors affecting who can buy them once you pass away or move into long-term care.

How can I find the right scheme?

Before taking out any equity release plan, it’s important to speak to a professional advisor to help you understand if equity release is a good idea for you with consideration to how it might affect your finances and ability to move to a new house later down the line.

As a member of the Equity Release Council, I can guide you through your options to help you decide whether equity release is the right choice for you. Contact me today to arrange a free initial consultation to get started.

4 Common Questions about Equity Release

Previous posts have already covered two of the biggest questions people have about equity release: “Why do people choose equity release?”, and “what’s the best equity release scheme?

However, given that equity release is a long-term financial decision, it’s understandable that people have many more questions and queries about how the equity release process works before choosing to proceed.

Every situation is different and will have its own unique considerations, but here are four of the most common questions that come up.

1 – Can anyone apply for equity release?

Equity release schemes will always have certain criteria that their applicants must meet. As a minimum, these usually include being at least 55 years of age and having the intention to take equity release from your main residence (not a second home, business or other investment property). Some schemes may offer specific arrangements if you are in poor health or are a smoker, for example.

2 – Can I stay in my home as long as I like?

Yes, equity release allows you to stay in your home for as long as you would like. Some lenders even allow for you to arrange in-home care if you become unwell, so you don’t even need to move into hospice accommodation if you don’t want to.

3 – What if I want to move to a new home in the future?

If you decide to leave your home, you can. Many equity release lenders will let you move to a new property, providing it meets certain eligibility requirements. However, if your new home is less expensive then you may have to pay back part of the outstanding loan. If you do not wish to transfer your equity release plan to your new home (perhaps you are moving in with family or into assisted living), you will have to fully repay the mortgage and may be subject to early repayment charges.

4 – Can my family end up inheriting debt?

In most cases, when someone passes away their debt will be paid off using any money or assets they leave behind and family members inherit whatever is left. However, there are equity release schemes that provide a “no negative equity” guarantee, meaning that, even if the sale of your home does not cover the outstanding loan, the scheme provider will not claim money from your other assets.

However, any equity release plan will impact the remaining value of your estate. It is always a good idea to take specialist advice about whether your will should be re-written to reflect this.

If you have any other questions about equity release, such as “why do people choose equity release?” or “what’s the best equity release scheme?” or “is equity release safe” have a read through our FAQ section of this site. Alternatively, feel free to contact me directly and we can discuss your situation and talk about my services in a little more detail.

Is a Lifetime Mortgage right for you?

Lifetime Mortgages are one way of releasing equity that’s in your home while being able to continue living there. The principle is that you take out a loan that is secured on your home (a mortgage), that does not need to be repaid until you pass away or move into long-term care.

How does a lifetime mortgage work?

As outlined above, a lifetime mortgage involves borrowing money against the value of your home, that does not need to be paid back until your home is sold upon your moving into care or passing away. The property – and the responsibility for maintaining it – is still completely yours.

If you are considering a lifetime mortgage, it’s important to know that it’s possible to ring-fence a portion of the property’s value so that your family still has something to inherit. There is also a “no negative equity” guarantee, which means that, should the value of your home decrease over the course of the lifetime mortgage, your estate would not end up owing more than the final value of the property.

There are a couple of repayment options when looking at a lifetime mortgage: one where the interest rolls up into a sum that is payable at the end of your mortgage term, or interest-paying mortgages that require you to pay back the interest in regular or ad-hoc amounts. Typically, lenders that allow this set a 10% per annum level that is normally based on original loan and subsequent drawdown amounts. The second type usually ends up being more cost-effective overall, but the “best” one will depend entirely on your circumstances and preferences.

You can see more information on our equity release page.

Are there any restrictions?

Yes, a few. For starters, the majority of lifetime mortgages are designed for your primary residence, but their products are also available for buy-to-let properties and second homes. Plus, most lenders will have a minimum age you have to be before you can apply – usually somewhere between 55 and 60. Your age will affect how much you can borrow, too. For example, at 65 you can expect to borrow between 25% and 30% of your property’s value. As you get older, you can borrow as much as 50%.

You should be aware that lenders will have minimum loan amount, which can range between £10,000 and £45,000, and your home will have to have a certain value in order to be eligible (at least £70,000 but higher for some lenders).

Contact us

As with any big financial decision, entering an equity release scheme should not be rushed. Take the time to carefully consider your alternative options, discuss the idea with your family and seek professional advice. I have been an Independent Financial Advisor for many years and provide specialist, unbiased advice about the implications of equity release and the options available.

For more information about the service I provide, please get in touch. I would be happy to answer any questions you may have and arrange a free, no-obligation initial consultation at a time and place that is convenient for you.

Nationwide Economic Update September

Nationwide’s Chief Economist, Robert Gardner, shares his views on the outlook for the UK economy, housing and mortgage market and house prices, in this latest quarterly update video. You’ll learn about:

• Interest rates
• Brexit
• The mortgage market
• Impact of higher interest rates
• UK house prices
• Regional house prices

Get advice about your own property with John Whyte.
Highly experienced in the fields of mortgages and equity release, John Whyte understands the importance of talking to you in plain and simple English.

Get in touch today.

What’s the best Equity Release scheme?

“What’s the best equity release scheme?”

“Where can I get the best deal on a reverse mortgage?”

“Which provider will give me the best rates?”

As an Equity Release specialist, these are questions that I am asked very frequently (“reverse mortgage” being the American term for equity release, which can cause initial confusion)! The simple answer? There isn’t one.

Why? Equity release is a complex process and the results can vary depending on your home, your age, your current financial situation and how much cash you want to withdraw. Without careful consideration, any equity release scheme – or reverse mortgage – can be a fantastic opportunity or a financial disadvantage – which is why it’s so essential that you take on professional, impartial advice before signing up.

When is equity release a good idea?

Over the last decade or so, house values have increased at a staggering rate while incomes have struggled to keep pace. This means that a vast number of homeowners have more wealth tied up in their homes than in their savings account.

Once retirement hits, those relying on a state pension may find that their reduced income causes a significant drop in quality of life and that they can no longer afford the larger purchases they used to. Equity release provides an alternative source of funds, converting the wealth that’s locked up in your home into cash – without you having to leave it.

There are two main options with equity release; lifetime mortgages and home reversion plans. In either case, any money that you borrow will not need to be repaid until you move into long-term care and sell your home, or pass away. Both options also allow you to protect a certain portion of your property value so that it can be passed on through inheritance and, depending on the scheme you choose, you may be able to pay back interest or small amounts to limit the final repayment sum.

When might another option be more suitable?

Downsizing is a popular alternative to equity release, although it comes with the requirement of leaving your family home, which not everyone is prepared to do. Households that are currently receiving (or are planning on receiving) any means-tested state benefits may also find that equity release impacts their eligibility.

There may be many factors as to why certain equity release schemes will or won’t be suitable, which is why it’s essential to talk your decisions through with family members, close friends and – most importantly – an impartial financial advisor.

Contact me for more information

Although it might not be for everyone, the UK equity release market is growing by about a quarter each year. If you are considering the potential of equity release (or a ‘reverse mortgage’) to enjoy a more comfortable lifestyle in your later years, there is a wealth of different products and schemes available to suit all kinds of situations.

For more information, please contact me or email me on john.whyte@therightequityrelease.co.uk and we can take a look at your options. Initial consultations are always free of charge and without obligation, and you are welcome to visit our office in Worthing or I can arrange to meet you at your home.

Economic Update from Robert Gardner, Nationwide

Nationwide’s Chief Economist, Robert Gardner, shares his views on the outlook for the UK economy, housing and mortgage market and house prices, in this latest quarterly update video.

Get advice about your own property with John Whyte.

Highly experienced in the fields of mortgages and equity release, John Whyte understands the importance of talking to you in plain and simple English.

Get in touch today.

Is Your Home Fully Protected?

Your home is probably the most important thing you own but have you considered what would happen if the worst should happen?

Ensure your home is fully protected, get in touch with John Whyte today.

Why do people choose Equity Release?

According to the Equity Release Council, more people than ever are choosing equity release as a way of unlocking funds that are tied up in their home. Why are so many homeowners opting for this way of managing their finances? In this blog, we’re going to look at some of the main motivators.

1 – Paying off an existing mortgage

If you have owned your home for many years, the changes are that you’ve built up significant equity as its value has steadily increased. Releasing some of this equity as cash can allow you to pay off your remaining mortgage, so that you no longer have to make monthly repayments and can enjoy a more comfortable retirement income.

Unlike downsizing, choosing equity release means that you retain ownership of your home and won’t have to leave (unless you eventually decide to go into long term care).

2 – Funding large purchases or holidays

Sometimes equity release is used as a way of financing a well-earned splurge, like a new car or hobby equipment. Now that you don’t have to worry about the weekly 9-5, wouldn’t it be nice to do something fun with the extra time on your hands?

Maybe you want to treat your family to something special? A lump sum from equity release could be used to pay for a wedding or a or a trip of a lifetime with the immediate family. It’s your money, so you decide if, and how, you’d like to share it.

3 – Home improvements

Most homeowners could tell you things about their home that they’d like to improve, if only they had the time or money. A large number of people opt for equity release in their later years so that they can finally make those changes.

Considering that equity release guarantees that you can keep your home for as long as you like, it makes sense to invest in home or garden improvements so that you can live more comfortably. You may also want to alterations that boost your home’s value, so that you achieve more money if you do decide to downsize or move into a care home in the future.

4 – Boosting overall income

By the time most of us reach our senior years, we’ve got various investments and pots of money to draw from. However, it’s not always easy to plan these in advance, and pensions may not always yield as much as you had hoped. Equity release offers a tax-free lump sum or draw-down scheme to give you a little extra room in your monthly income post-retirement.

5 – Gifts and planning

Some people choose equity release as a way of passing on part of their home’s value to their children, to reduce the inheritance tax due on the property when they pass away. This could take the form of a cash gift, or by using the released funds to pay for house deposit or outstanding debts.

If you’d like more information about whether equity release is right for you, what your options are and how it might affect your finances, please get in contact. As an Independent Financial Advisor, I offer impartial and regulated advice and can help you come to an informed decision about how to release some of the equity in your home.

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