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What are the different types of lifetime mortgages?


A lifetime mortgage allows you to borrow money against the value of your home while retaining the ownership of the mortgage holder. Interest is charged on the borrowed amount - it is then repaid or added to the total amount of the loan.

When the lifetime mortgage holder passes away or moves into care, the home is sold and the money from the proceeds is used to pay off the loan, with remaining parts of the lump sum distributed among beneficiaries.

There are different types of lifetime mortgages, and here we run though the varieties you are likely to come across.

Interest paying mortgage

This works by giving the mortgage holder a lump sum, and making monthly or ad hoc payments. By doing this, the holder reduces interest roll-up over a period of time. There are plans which permit you to pay off the capital amount owed as well if they wish. The total borrowed is paid off in full when the home is eventually sold following the end of the term.

Interest roll-up mortgage

This type of lifetime mortgage gives you a lump sum or regular payment, as you wish. The difference between this and the interest paying type is that no regular payments are required. Everything is repaid at the end of the term - the amount you borrowed, plus the interest which has been rolled up over the length of the term.

Should i choose income or lump sum?

The way in which you receive your loan varies between a lump sum, or regular 'drawdown' payments. This should be decided upon - after seeking professional financial advice - according to the requirements of the individual.

Things to watch out for

If you opt for an interest roll-up mortgage, be aware that the total amount owed can rapidly increase, and in some scenarios you could end up owing more than the value of your home. It is possible to secure a no-negative-equity guarantee with your mortgage, and you should check the terms of any package carefully, specifically that it is offered with an Equity Release Council standard.

If you choose a mortgage that offers variable interest rates, you should recognise that the interest rate may fluctuate.

In the right circumstances, lifetime mortgages can allow financial flexibility which can help improve cash flow in the short term, by using the value of a home, which is the primary financial asset for many of us. However, all long-term financial planning should be done with the utmost care and attention, and where possible, with the consultation of professional financial advisers.

Please note:

  • Equity release, lifetime mortgages & home reversion plans will reduce the value of your estate and can affect your eligibility for means tested benefits.

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