A lifetime mortgage is a form of equity release, secured against your home. It allows you to borrow against the value of your home to raise money. People use a lifetime mortgage if they have important lifestyle choices, challenges or plans that they’d like help to finance.
Equity release options
There are two equity release options.
· Lifetime mortgage: you take out a mortgage secured on your property provided it’s your main residence, while retaining ownership. You might be able to ring-fence some of the value of your property as an inheritance for your family. You can choose to make repayments or let the interest roll-up. The loan amount and any built-up interest is paid back by selling the property when the last borrower dies or when they move into long-term care.
· Home reversion: you sell part or all of your home to a home reversion provider in return for a lump sum or regular payments. You have the right to continue living in the property until you die, but you have to agree to maintain and insure it. You can ring-fence a percentage of your property for later use, possibly for inheritance by only selling part of your property. The percentage you retain will always remain the same regardless of the change in property values, unless you decide to take further cash releases. When the last borrower dies or moves into long-term care your property is sold and the sale proceeds are shared according to the remaining proportions of ownership.
Lifetime mortgages
Most people who take out equity release use a lifetime mortgage. Usually you don’t have to make any repayments while you’re alive. Instead, interest is ‘rolled up’, which means the unpaid interest is added to the loan. This means the debt can increase quite quickly over a period of 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.
Is releasing equity the right option for you?
Whether equity release is the right option for you depends on your circumstances such as:
- your age
- your income
- how much money you want to release
your plans for the future.
When releasing equity, it’s tempting to focus on the immediate boost you will get from the money you unlock, but you need to look at how it will affect your future choices and financial situation in later life.
Getting advice
If you’re thinking of taking out an equity release product, you should take financial advice from an independent financial adviser. They’ll be able to suggest a plan suitable for your needs by researching all the products on the market. All advisers recommending equity release schemes must have a specialist qualification.